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The Caribbean Catastrophe Risk Insurance Initiative

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Joseph M Matalon. Chairman, CGM Group. Outline. What is the Facility' ? How will it be financed ? ... Antigua & Barbuda, Dominica, Saint Lucia, St Vincent & the ... – PowerPoint PPT presentation

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Title: The Caribbean Catastrophe Risk Insurance Initiative


1
The Caribbean Catastrophe RiskInsurance
Initiative
2
Finance and Operations Strategy Project
  • Joseph M Matalon
  • Chairman, CGM Group

3
Outline
  • What is the Facility ?
  • How will it be financed ?
  • How will it be operated ?
  • What are the benefits ?
  • What are the barriers ?
  • What do we need to move forward ?

4
What is the Facility ?
  • It will be an insurance company set up as an
    offshore captive
  • Sole product will be parametric insurance
    policies sold to Government Treasuries
  • Payout will not be related directly to loss it
    is not an indemnity contract
  • Payout instead will be based on a pre-designed
    parametric index for earthquake and hurricane
    perils

5
Parametric Index
6
How will it be financed ?
  • International donors will provide initial seed
    capital via a World Bank Trust Fund
  • Income from premiums and from return on the
    invested seed capital
  • Expenditure reinsurance/ART premiums, Facility
    management and payouts when triggered
  • Aiming for long-term survivability of Facility,
    so heavily reinsured initially

7
Financial Flows
Reinsurance/ART(Purchased in international
financial market)
Country 1
Country 2
ReinsurancePremium
ReinsurancePayout
Initial donor contribution
Country 3
Growth
Premium
Initial donor contribution
Country 4
Payout
Reserves
Country 5
Initial donor contribution
Country 6
Country 7
8
Reinsurance and ARTs
  • Alternative Risk Transfer (ART) mechanisms such
    as Cat Bonds will be considered
  • Risk transfer can be achieved through traditional
    reinsurance, but hurricane market very hard
    right now, leading to high cost
  • Capacity appears to be sufficient without
    impacting regional insurance industry
  • Pooling, good definition of risk and geographical
    diversification should lead to better pricing
    from reinsurers and good market for capital
    instruments

9
Risk Transfer
10
How will it be operated ? a working model
  • CCRIF an offshore captive, probably domiciled in
    Cayman or Bermuda, where regulatory regime and
    experience are optimal and barriers/administrative
    costs appear to be minimised
  • Facility Board 1 WB, 1 Donor and 1 client
    country representative, two ex-regional insurance
    or reinsurance experts
  • Facility Supervision contracted with a
    specialist risk management company Facility will
    sub-contract certain admin functions (legal,
    accounting, regulatory), asset management
    (probably to World Bank Treasury) and reinsurance
    placement

11
Facility Management
Reinsurance or ART is placed in international
market and adjusted annually
  • Facility is managed by a Supervisor answering to
    a Board.
  • The Facility supervisor will
  • Contract policies
  • Manage assets
  • Risk management
  • Manage claims
  • Meet regulatory obligations

Reinsurance/ART(Purchased in international
financial market)
ReinsurancePremium
ReinsurancePayout
Reserves managed by the WB (all interest
compound to the reserve)
Growth
Reserves
12
What are the primary benefits ?
  • We believe the Facility offers the best mechanism
    to optimise catastrophe insurance pricing in the
    Caribbean
  • Parametric contracts minimise Facility
    operational costs and simplify the insurance
    contract
  • Cash with no strings will be available within 1
    month of a triggering peril occurring

13
Reducing insurance cost
  • Commercial premium pure premium operational
    costs catastrophe load return on equity
  • Pure premium will be better defined than in a
    normal indemnity policy, so less room for
    conservatism in pricing the pure premium
  • Operational costs minimised through economies of
    scale and parametric contracts
  • Cat load reduced through geographical diversity
    and donor seed capital
  • Facility will be non-profit

14
Commercial vs Pure Premium in the Caribbean
15
Some secondary benefits
  • Country sends message to wider world that it is
    committed to effective risk management, and is
    taking steps to safeguard government operations
    after a disaster
  • Private sector investors and the tourism market
    will have increased confidence in the countrys
    ability to quickly overcome the setback after a
    disaster
  • Country credit rating partially protected
  • Support for currencies (if floating) in
    post-disaster situation

16
What are the barriers ?
  • Where relevant, individual countries need to make
    exceptions to existing legislation (which may
    debar the purchase of insurance from offshore
    insurance vehicles)
  • Individual countries will need to finance annual
    premium payments (3-year commitment)
  • Pooling and diversification will only assist in
    reducing cost if we get a substantial number of
    countries taking part

17
What do we need to move forward ?
  • A good idea of which countries are interested and
    at what level (what annual premium might they be
    prepared to pay ?, for what payout ?)
  • Transfer of all information to relevant officials
    so that countries are ready to sign once
    insurance policy contracts are finalised in
    September
  • Countries need to move forward with enabling
    legislation, once operational structure is
    finalised

18
We are here to help
  • Our project team is tasked with helping all
    countries analyse the pros and cons of
    participation
  • We will visit individual countries where
    necessary, and will host sub-regional seminars
    for country groups (OECS, UKOTs)
  • Each country will have an assigned member of the
    team as primary contact these team members will
    introduce themselves during the day

19
Primary Contacts
  • Dr Simon Young, GeoSY Ltd
  • 202 465 4301 simon_at_geosy.com
  • Matthew Pragnell, CGM Group
  • 876 906 0348 matthewpragnell_at_iibre.com
  • Dr Jan Vermeiren, KAC
  • 240 821 1202 jcvermeiren_at_mail.methaz.net

20
Country Contacts
  • Jamaica
  • Joe Matalon
  • 876 922 6670
  • joseph_at_icdgroup.net
  • Barbados
  • Tommy Smith
  • 876 948 6995
  • thomassmith_at_iib-jm.com

21
Country Contacts
  • Trinidad Tobago
  • Peter Melhado
  • 876 922 6670
  • peter.melhado_at_icdgroup.net
  • Grenada, St Kitts Nevis, Antigua Barbuda,
    Dominica, Saint Lucia, St Vincent the
    Grenadines, Belize
  • Steven Stichter
  • 240 821 1202
  • sstichter_at_mail.methaz.net

22
Country Contacts
  • Cayman Islands, Bermuda
  • Saundra Bailey
  • 876 906 0348
  • saundrabailey_at_iibre.com
  • Vikram Dhiman
  • 876 922 6670
  • vikramd_at_icdgroup.net

23
Country Contacts
  • Montserrat, British Virgin Islands, Turks
    Caicos Islands, Anguilla
  • Paul Rousseau
  • 876 383 4698
  • paul_at_geosy.com
  • Bahamas, Guyana, Suriname
  • Bobby Dawes
  • 876 906 0348
  • eberledawes_at_iibre.com

24
Country Contacts
  • Haiti
  • Clive Myers
  • 876 906 0348
  • clivemyers_at_iibre.com
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