Tag Archives: risk pooling

Caribbean Catastrophe Pool Aids Hurricane Matthew Recovery

By tomorrow four Caribbean countries will have received payouts from the CCRIF PC (formerly the Caribbean Catastrophe Risk Insurance Facility) due to Hurricane Matthew, for a total of $29.2 million.

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The chart above shows a $20.4 million payout by the CCRIF to the Government of Haiti on its Tropical Cyclone (TC) policy as a result of Hurricane Matthew, and an additional payment of just over $3 million on its excess rainfall policy, for a total of $23.4 million.

The payments come just two weeks since Hurricane Matthew hit Haiti as a Category 4 storm, devastating the southern portion of the country and leaving more than 1,000 dead.

Barbados will also see a payout of just under $1 million on its TC policy for a total payment to the country of $1.7 million due to Matthew.

The excess rainfall policies of Saint Lucia and St. Vincent & the Grenadines were also triggered by Hurricane Matthew, resulting in CCRIF payments to those countries of $3.8 million and $285,349, respectively.

Including the Hurricane Matthew payments, CCRIF has now made a total of 21 payouts to 10 member governments totaling almost $68 million since 2007, all within 14 days of an event.

CCRIF is able to make quick payouts because it offers parametric insurance products to its member countries.

TC policies make payments based on hurricane wind speed and storm surge levels and do not include losses due to rainfall. To fill this gap, CCRIF’s Excess Rainfall (XSR) product was developed a few years ago. Under the excess rainfall policies, payments are triggered based on the volume of rainfall from a hurricane or other rain event.

Each government selects its own attachment point or deductible, so the individual country’s policies are triggered when the modeled losses surpass that point.

Most CCRIF members have purchased both TC and XSR policies and many members also have earthquake coverage.

Just last year, the CCRIF expanded its membership to countries in Central America as well as the Caribbean.

Artemis blog reports that the $29.2 million of payouts due to Hurricane Matthew  by the CCRIF will not come close to troubling its catastrophe bond coverage, but could result in the facility being able to call on reinsurance support for some of the loss.

It also predicts increasing uptake of parametric insurance for disaster protection and recovery funding as more corporate buyers become aware of the opportunities.

 

 

Caribbean Catastrophe Pool Expands to Central America

It’s always heartening to read about insurance being made available to a market or sector that for whatever reason has not been able to benefit from risk  transfer in the face of natural disaster.

So the news that countries of Central America will now be able to access affordable catastrophe cover by joining the former Caribbean Catastrophe Risk Insurance Facility–now the CCRIF SPC–is a positive.

A memorandum of understanding signed by the Council of Ministers of Finance of Central America, Panama and the Dominican Republic (COSEFIN) and CCRIF SPC will allow Central American countries to join the sovereign catastrophe risk insurance pool.

Nicaragua has signed a participation agreement to become the first Central American country to join the pool. Other member nations of COSEFIN are expected to join later this year and in 2016.

A press release puts some context around the need:

Nine countries in Central America and the Caribbean experienced at least one disaster with an economic impact of more than 50 percent of their annual gross domestic product (GDP) since 1980.

The impact of Haiti’s earthquake was estimated at 120 percent of GDP. That same year, tropical cyclone Agatha, in Guatemala, had devastating consequences and poverty rates increased by 5.5 percent.

Climate change also represents a significant development challenge, with average economic losses due to weather-related disasters amounting to 1 percent or more of GDP in 10 Caribbean countries and four Central American nations, including Nicaragua.”

As Artemis blog reports here, some 16 Caribbean countries are now members of the 2007-established CCRIF SPC, benefiting from parametric insurance products covering tropical storm and hurricane risks, earthquake risks or excess rainfall risks.

The risk pooling facility helps its members to access post-event risk financing, based on the actual event parameters, with a rapid payout and disbursement of as little as two weeks possible. This enables countries to access financing for recovery from natural catastrophes, while benefiting from cheaper premiums due to the risk pooling nature.”

The newly-expanded 23-nation partnership is a win-win for both existing and new CCRIF members, providing low prices due to more efficient use of capital and insurance market instruments. New members will be able to take advantage of CCRIF’s low premium costs and existing members could realize premium reductions due to the increased size of the CCRIF portfolio.

Consider this example: the CCRIF made a $7.75 million payout to the Haitian government some two weeks after the January 2010 earthquake hit close to Port-au-Prince. The value represented approximately 20 times the premium of $385,500 based on Haiti’s catastrophe insurance policy for earthquakes for the 2009/2010 policy year.