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NJFuture Redevelopment Forum 2016 Kaplan


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Presentation from plenary session on climate change

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NJFuture Redevelopment Forum 2016 Kaplan

  1. 1. Resilience and the Economics of Risk New Jersey Future March 2016
  2. 2. Swiss Re Global Partnerships | Alex Kaplan | March 2016 The growing burden of uninsured losses Natural catastrophe losses 1970 – 2014 (in 2014 USD) 2 0 50 100 150 200 250 300 350 400 450 1970 1975 1980 1985 1990 1995 2000 2005 2010 Uninsured losses Insured losses 10-year moving average insured losses 10-year moving average total economic losses Source: Swiss Re Economic Research & Consulting and Cat Perils.
  3. 3. Swiss Re Global Partnerships | Alex Kaplan | March 2016 Growing Exposures: Climate change is not the main driver for rising natural catastrophe losses in recent decades Source: Shanghai: 1990 to 2013
  4. 4. Swiss Re Global Partnerships | Alex Kaplan | March 2016 0 50 100 150 200 250 300 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 Total Disasters FEMA Disaster Declarations – 1970-2014 Disasters Have Tripled Since in the 1970s 4
  5. 5. Swiss Re Global Partnerships | Alex Kaplan | March 2016 The proportion of economic losses absorbed by the USG: Is this sustainable? 5
  6. 6. Swiss Re Global Partnerships | Alex Kaplan | March 2016 • Since 2005, the US taxpayer has spent over $300 billion on direct costs of extreme weather and fire alone. • Firefighting expenses have tripled in 20 years. • In 1991, firefighting made up 13% of the Forest Service budget. In 2013, it was 50% • Natural catastrophes (earthquake and weather related) cause average economic losses of $60-100 billion annually. (Hurricane Sandy = ~$70 billion) • The US Government spent $96b in 2012 to pay for climate-related events – If this so-called "Climate Disruption Budget" were included in the actual budget, it would be the largest non-defense discretionary budget item. – The Government paid more for climate-related losses than it did for transportation or education. In the US, the price tag is large and growing.
  7. 7. Swiss Re Global Partnerships | Alex Kaplan | March 2016 Growing consensus on the macroeconomic impact of natural events 7 “Insurance confers benefits both before and after disaster strikes. Beforehand, the underwriters [demand] better planning and higher-quality, more resilient building from property developers and city planners. Afterwards, insurance helps entire economies to recover more rapidly.” The Economist, 13 June 2015 "Major natural catastrophes have large and significant negative effects on economic activity... However, it is mainly the uninsured losses that drive the subsequent macroeconomic cost, whereas sufficiently insured events are inconsequential in terms of foregone output." Working Paper No. 394, December 2012 "Natural disasters can damage sovereign creditworthiness” Storm Alert: Natural Disasters Can Damage Sovereign Creditworthiness, September 2015 "Climate change is likely to be one of the global mega-trends impacting sovereign creditworthiness…. Government budgets could come under additional pressure as disaster recovery and emergency support for affected populations is likely to fall on the state in most cases." Climate Change is a Global Mega Trend for Sovereign Risk, May 2014
  8. 8. Swiss Re Global Partnerships | Alex Kaplan | March 2016 8 Vietnam Agriculture yield cover Pacific Islands Earthquake and tropical cyclone risk Uruguay Energy production shortfalls due to drought India Weather insurance for farmers Caribbean Hurricane, earthquake and excess rainfall risk Beijing Agricultural risk Turkey Earthquake pool Alabama Hurricane risk Mexico Earthquake/hurricane and livestock risk Bangladesh Meso flood insurance African Risk Capacity Government drought insurance pool (Mauritania, Senegal, Kenya, Niger Mozambique)  First dedicated public sector team in the reinsurance industry  Over 100 closed solutions since 2006  Manage insurance, reinsurance and capital markets and all perils (disasters, weather, pandemics, longevity, etc.)  Global footprint  Pioneer in emerging and industrialized markets Swiss Re Global Partnerships enables Swiss Re to address the protection gap Florida Hurricane risk
  9. 9. Swiss Re Global Partnerships | Alex Kaplan | March 2016 9 Economics of Climate Adaptation Swiss Re Global Partnerships | October 2015 9
  10. 10. Swiss Re Global Partnerships | Alex Kaplan | March 2016 10 Climate adaptation is an urgent priority Decision makers ask  What is the potential climate-related damage over the coming decades?  How much of that damage can we avert, with what measures?  What investments will be required to fund those measures and will the benefits of that investment outweigh the costs?
  11. 11. Swiss Re Global Partnerships | Alex Kaplan | March 2016 Sea level rise and altered hurricane frequencies significantly increase losses in New York City Source: A Stronger More Resilient New York Expected annual losses from storm surge and wind (billion USD) + 88% + 70% + 168%
  12. 12. Swiss Re Global Partnerships | Alex Kaplan | March 2016 • Current drivers of loss: east and south shores of Staten Island, southern Brooklyn and Queens, Brooklyn and Queens waterfront and southern Manhattan. • Under future scenarios: Same geographic regions, plus northern Queens and the Bronx • Under 2050s scenario: 400% increase in ZIP codes which have an AEL of USD 30 million Results Annual Expected Loss by ZIP code 12 Source: A Stronger, More Resilient New York
  13. 13. Swiss Re Global Partnerships | Alex Kaplan | March 2016 Closing the gap 13 13
  14. 14. Swiss Re Global Partnerships | Alex Kaplan | March 2016 How to close the protection gap 14 gap 14 Which risk? Governments Who carries the risk? Pooling Insurance schemes and pools to increase insurance penetration Macro Risk transfer solutions for (sub)sovereigns to cover their direct or indirect costs Micro Simplified products distributed via aggregators such as MFIs, NGOs, and corporates Risk transfer solution Businesses, homeowners, farmers Public physical assets Emergency response costs Foregone revenue Uninsured private assets Livelihood assistance Protectiongap Individuals
  15. 15. Swiss Re Global Partnerships | Alex Kaplan | March 2016 Disaster Risk Financing: Case Studies 15
  16. 16. Swiss Re Global Partnerships | Alex Kaplan | March 2016 16 Case study Caribbean: Caribbean Catastrophe Risk Insurance Facility (CCRIF) Solution features  The CCRIF offers parametric hurricane and earthquake insurance policies to 16 CARICOM governments  The policies provide immediate liquidity to participating governments when affected by events with a probability of 1 in 15 years or over  Member governments choose how much coverage they need up to an aggregate limit of USD 100 m  The mechanism will be triggered by the intensity of the event (modelled loss triggers)  The facility responded to events and made payments: Involved parties  Reinsurers: Swiss Re and other overseas reinsurers  Reinsurance program placed by Guy Carpenter  Derivative placed by World Bank Treasury Payouts to date  2010: Haiti USD7.7m (earthquake), Barbados USD 8.5m (hurricane), St. Lucia USD 3.2m (hurricane), St. Vincent & The Grenadines USD 1.1 (hurricane), Anguilla USD 4.2m (hurricane).  2008: Turks & Caicos USD 6.3m (hurricane)  2007: St. Lucia USD 418k (hurricane), Dominica USD 528k (hurricane).
  17. 17. Swiss Re Global Partnerships | Alex Kaplan | March 2016 17 Case study Mexico: MultiCat - Funding for immediate relief efforts after disasters Solution features  Insured perils: Earthquake and hurricane  Payments to be used for immediate emergency relief after a disaster  Parametric catastrophe bond: USD 315 m  Trigger type: Index  Earthquake: physical trigger (quake magnitude)  Hurricane: physical trigger (barometric pressure)  Time horizon: October 2012 – November 2015  Renewed cat bond launched through the World Bank’s MultiCat facility and third cat bond for Mexico Involved parties  Insured: Fund for Natural Disasters (FONDEN) of Mexico  Reinsured: AGROASEMEX S.A.  Arranger: World Bank Treasury  Swiss Re: Co-lead manager and joint bookrunner
  18. 18. Swiss Re Global Partnerships | Alex Kaplan | March 2016 18 Case study United States: Alabama – First parametric cover for a government in an industrialized country Solution features • Insured peril: Hurricane • Payments to offset economic costs of hurricanes • Trigger type: Disaster occurring within a defined geographic area ("box") along coast (“cat-in-the-box”) • Trigger based on wind speed of hurricane eye as it passes through pre-determined box • Payout in as little as two weeks • Time horizon: July 2010 – July 2013 • First parametric catastrophe risk transfer for a government in an industrialized country Involved parties • Insured: State Insurance Fund of Alabama • Swiss Re: Lead structurer and sole underwriter 18
  19. 19. Swiss Re Global Partnerships | Alex Kaplan | March 2016 19 19 Case study: Broward County, FL– Custom multi-year structured cover Solution features  Insured peril: Named Windstorm and associated flood  Multi-year structured cover: USD 100m  Covering indemnified losses from NWS to soften impact to the County – 3 year coverage with unlimited reinstatements – Term Aggregate Deductible – Fixed premium over term – No claims bonus  Time horizon: February 2015– February 2018  Customized multi-year structured risk transfer for major school district Involved parties  Insured: Broward County  Swiss Re: Lead structurer and sole underwriter  Broker: AJ Gallagher
  20. 20. Swiss Re Global Partnerships | Alex Kaplan | March 2016 Contact Information – The Americas Alex Kaplan Senior Client Manager Global Partnerships Swiss Re Management (US) Corp. 101 Constitution Ave. NW, Suite 700 Washington, DC 20001 USA Tel +1 (202) 742-4623 Fax +1 (202)742-4630 @alexskaplan 20
  21. 21. Swiss Re Global Partnerships | Alex Kaplan | March 2016 21
  22. 22. Swiss Re Global Partnerships | Alex Kaplan | March 2016 Legal notice 22 ©2016 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivative works of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re. The information and opinions contained in the presentation are provided as at the date of the presentation and are subject to change without notice. Although the information used was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any damage or loss resulting from the use of the information contained in this presentation is expressly excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial or consequential loss relating to this presentation.