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Resilience Bond / Insurance Concept: mangrove case study

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Presented by The Nature Conservancy / Munich Re on 25 September 2019 at Blue Carbon Regional Workshop, Merida, Yucatan.

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Resilience Bond / Insurance Concept: mangrove case study

  1. 1. Resilience Bond / Insurance Concept mangrove case study The Nature Conservancy / Munich Re For CIFOR September 2019 Quelle: Verwendung unter Lizenz von Shutterstock.com ©TNC(TimCalver)
  2. 2. Mangrove science: General background CONFIDENTIAL FOR KFW 2 • Mangrove risk reduction science indicates 10 – 30% flood risk reduction (surge-driven flooding) and 5 – 15% wind risk reduction • The level of risk reduction depends on the type of storm and the mangrove characteristics. • For wind-waves, wave height can be reduced by 50-100 % over 500 meters of mangrove forest. • Mangrove species with dense vegetation are most effective at reducing wave height. • With respect to storm surges, water level measurements and numerical models show that mangroves can reduce storm surge peak water levels by 5-50 cm/km of mangrove forest.
  3. 3. Mangrove science: Risk reduction benefits CONFIDENTIAL FOR KFW 3 0 20 40 60 80 100 120 0 20 40 60 80 100 120 140 Storm Return Period (years) With Mangroves Without Mangroves PeopleFlooded(millions) Global averted flooding to people Source: Losada, I. J.. In press (2018). The Global Value of Mangroves for Risk Reduction: Technical Report. The Nature Conservancy, Berlin.
  4. 4. Mangrove science: Indonesia Avoided annual built capital losses ($ millions /100km) CONFIDENTIAL FOR KFW 4 Source: Losada, I. J.. In press (2018). The Global Value of Mangroves for Risk Reduction: Technical Report. The Nature Conservancy, Berlin.
  5. 5. Mangrove science: Indonesia Annual averted flooding (population per 100km) CONFIDENTIAL FOR KFW 5 Source: Losada, I. J.. In press (2018). The Global Value of Mangroves for Risk Reduction: Technical Report. The Nature Conservancy, Berlin.
  6. 6. Mangrove science: Philippines High-resolution flood mapping example CONFIDENTIAL FOR KFW 6 No MangrovesCurrentHistorical – 1950 3m 1 km 3,5m 4,5m 5m 6m 5m 7m 6m 6m 1 km 1 km 1 in 50 year flooding case study Source: Beck, M. W. et al.. 2017. Policy Note- Valuing the Protection Services of Mangroves in the Philippines. World Bank, DC. Losada, I. et al.. 2017. Technical Report- Valuing the Protection Services of Mangroves in the Philippines. World Bank, DC.
  7. 7. Mangrove restoration is less expensive than coral reef restoration. The risk reduction effects will materialize faster than coral reef biological restoration but slower than coral reef structural restoration. Mangrove science Implementation aspects and comparison 7CONFIDENTIAL FOR KFW Restoration Techniques Costs and Timeline Risk Reduction Impact ▪ Planting costs: $5 - $10k per hectare, implying $100 - $200k costs per km of coastline protected ▪ Benefits delivery: 2-10 year growth window with risk reduction growing rapidly Mangroves Coral Reefs ▪ 10 – 30% flood risk reduction (surge-driven flooding) ▪ 5 – 15% wind risk reduction (after fully grown) (Das and Crepin, 2013) ▪ 10 – 50% flood risk reduction (wave driven flooding) ▪ Potential benefits on shoreline accretion & stability (not quantified ) ▪ Restoration costs: $1 – 3 mill. per km of structural reef restoration ▪ Benefits delivery: Immediate upon structural reef restoration (also influence on sediment and coastal stability) ▪ Biological restoration – e.g., coral planting ▪ Structural restoration – e.g., reef blocks ▪ Succesful restoration (for risk reduction) – tens of thousands of hectares ▪ Native species and location matter (non- native species in novel places fail) ▪ May need to reduce seaward erosion first
  8. 8. Appendix: The trade-off between risk transfer and resilience-building measures (I/II) Natural Disaster Risk Management Private & Public Assets Emergency Response Recovery & Reconstruction Contingent Liability Risk Owner Resilience- Building Measures Insurer / Capital Markets Resilience (Risk Reduction) Risk Transfer Risk Reduction Coverage / Liquidity Resilience Investment Risk PremiumsRisk Reduction Effects ▪ Upfront investment is amortized via future reduction in risk ▪ But risk reduction benefits are rarely quantified and not accounted for tangibly Insurance Payout ▪ Future pay-out provides a substantial contribution to post-event relief / recovery ▪ But premiums may be viewed as „money in insurer‘s pockets“ if an event does not occur Either Or CONFIDENTIAL FOR KFW 8
  9. 9. Appendix: Can risk reduction and risk transfer be coupled in a combined insurance solution? (II/II) Insurance Payout Resilience Investment Risk Premiums Risk Reduction Effects Investment Amortization Reduction of Contingent Liability A resilience insurance solution aims to overcome the trade-off between risk reduction and risk transfer, linking the risk reduction effect with an insurable risk within a combined solution: • A resilient investment at the beginning of the period reduces the underlying risk • The risk mitigating impact is monetized via reduced premiums • An incentive is created both for risk- reducing infrastructure as well as for risk transfer resulting in increased community resilience CONFIDENTIAL FOR KFW 9
  10. 10. Disclaimer The information contained herein is provided to you on a strictly confidential basis and you agree that it may not be copied, reproduced or otherwise distributed by you (other than to your professional advisors) without prior written consent. Neither Munich Re (Group) nor The Nature Conservancy is a legal, tax or accounting advisor and makes no representations as to the accuracy of any data or information gathered or prepared in this presentation. Your company should therefore consult with its own tax, legal or other advisors and make its own independent analysis and investigation of the proposed transaction, as well as the financial, legal, accounting and tax consequences thereof, the creditworthiness of the parties involved and all other matters to the transaction prior to its own independent decision whether or not to enter into any agreements in connection with the transaction. This analysis and proposal contains indicative terms for discussion purposes only. Neither Munich Re (Group) nor The Nature Conservancy gives assurance that any transaction will be consummated on the basis of these indicative terms and no specific issuer is obliged to issue any security or instrument on such indicative terms. This presentation does not constitute an offer to sell or any solicitation of any offer to buy or sell any security or instrument or to enter into any transaction on such indicative terms. The data and analysis does not assure that securities can be issued at certain terms and conditions. All terms and conditions are subject to a mutually agreed engagement letter. This presentation is not intended to provide the sole basis for any evaluation by you of a transaction, security or instrument and you agree that the merits or suitability of any such transaction, security or instrument to your particular situation will be independently determined by you including consideration of the legal, tax accounting, regulatory, financial and other related aspects thereof. In particular, neither Munich Re (Group) nor The Nature Conservancy owes duty to you to exercise any judgement on your behalf as to the merits or suitability of any transaction, security or instrument. CONFIDENTIAL FOR KFW 10

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