1. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Public-Private Partnerships in
Risk Management
Addressing the Costs of Climate Change
Alex Kaplan
October 31, 2013

2. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Massive gap between total and insured
losses shows insurance potential
Natural and man-made catastrophe losses 1980-2012, in USD billion (2012 prices)
400
Insured losses
Uninsured losses
350
300
250
200
150
100
50
0
1980
1985
1990
1995
2000
2005
Source: Swiss Re Economic Research & Consulting, sigma catastrophe database
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2010

3. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Insured catastrophe losses, 1970–2012
120
2005:
Hurricanes Katrina, Rita, Wilma
USD bn, at 2012 prices
100
2004:
Hurricanes Ivan,
Charley, Frances
80
2001:
Attack on
WTC
60
2011:
Japan , NZ EQs
2008:
Hurricanes
Ike, Gustav
1999:
Winter storm
Lothar
1992:
40
2012:
Hurricane
Sandy
1994:
Northridge
EQ
20
0
1970
1975
1980
Earthquakes/tsunamis
1985
1990
Man-made disasters
Swiss Re Global Partnerships | October 31, 2013
1995
2000
2005
2010
Weather-related natural catastrophes
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4. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Growth of values is the main driver of
increasing natural catastrophe losses
Shanghai 1990 - 2010
Increasing values
Concentration in exposed
areas
Increasing vulnerability
Growing insurance
penetration
Changing hazard (climate
variability, climate change)
Loss history is not a good guide for risk, models are an indispensable tool
Source: weburbanist.com
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5. CONFIDENTIAL | RESTRICTED DISTRIBUTION
The US has a high level of exposure to
climate change

Total insured value of property along the Atlantic and Gulf coast was
$10.6 trillion, with New York and Florida topping the list at $2.9 trillion
apiece.

Sea level rise is accelerating, especially along the U.S. East Coast and Gulf
of Mexico.

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
(Source: NRDC).
– 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.
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6. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Closing the Gap: Including ex-ante
instruments into the overall risk financing
strategy
Ex-ante risk financing
Private
Citizens /
Individuals
(Re-)insurance
policies
Corporations /
Commercial
Enterprises
(Re-)insurance
policies
Government’s
exposure
(state budget)
Reserve funds,
parametric
reinsurance,
catastrophe bonds
Ex-post financing
Smaller gap
between
economic and
insured losses
 Reduced financial
burden for the
government after
an event
 Less volatility for
the state budget
and more planning
certainty

Debt
financing
Budget
reallocation
Donor
assistance
Tax increases
Others
Including ex-ante instruments in the overall risk financing mix helps a government
to lower its financial exposure to catastrophic risks, natural and man-made.
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7. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Systematic risk management
approach for natural disasters
Identification
Assessment
>10
billion
Tsunami

1-3
billion
Pandemic
0.1-1.0
billion
Typhoon
Coastal flooding
below
1%
1-5%
5-10% 10-20%


Drought
<100
million
illustrative

Earthquake
3-10
billion
Severity
(in USD)
Prevention
and
Mitigation
above
20%
Swiss Re Global Partnerships | October 31, 2013
Likelihood
Adaptation
Prevention and mitigation strategies must be
the first priority in order to reduce the extent of
any economic loss
However, public natural disaster management
includes also the financial preparedness for the
residual risk
Hence the deployment of public funds should
be well balanced between prevention/
mitigation and adaptation measures
Adaptation measures include ex-ante disaster
financing instruments, such as reserve funds
and a variety of risk transfer instruments
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8. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Economics of
Climate Adaptation
Please find the full study at www.swissre.com/climatechange
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9. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Climate-resilient development needs to
address total climate risk

Adaptation measures are available to make societies more resilient to the
impacts of climate change and should be an urgent priority for the
custodians of national and local economies, such as finance ministers and
mayors.

Decision makers need the facts to identify the most cost effective
investments.

The Economics of Climate Adaptation (ECA) methodology provides decisionmakers with a fact base to answer these questions in a systematic way.

It allows decision-makers to integrate adaptation with economic
development and sustainable growth.

The insurance industry is an important partner in future adaptation plans
because of its experience in risk management and modeling, and in
developing new insurance products.
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10. CONFIDENTIAL | RESTRICTED DISTRIBUTION
We've conducted climate adaptation
studies in 17 regions of the world
U.K. / Hull
China
Mali
North, Northeast
US Gulf coast
Florida
India
Maharashtra
Anguilla, Bermuda,
Barbados , Jamaica,
Antigua and Barbuda,
St. Lucia, Dominica
Tanzania
Samoa
Samoa
Guyana
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11. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Case study methodology
Where and
from what is
the State
most at
risk?
What is the
magnitude of
the expected
loss?
What
measures
should be
considered?
How can
measures be
implemented?
Map of areas
at risk
Estimate of
potential loss
Set of adaptation
measures
Implementation
assessment
– Identify most
relevant hazard(s)
in case location
– Hazard: Develop
frequency and
severity scenarios
– Identify potential
adaptation
measures
– Assess current
progress against
the measures
– Identify areas that
are most at-risk, by
overlaying
hazard(s) on:
– Value: Quantify
assets and income
value in area at risk
– Determine societal
costs and benefits
and basic feasibility
Input into
adaptation
strategy
– Understand
requirements to
implementation
– Population
– Economic value
(GDP)
– Vulnerability:
Determine
vulnerability of
assets and incomes
to the hazard
Swiss Re Global Partnerships | October 31, 2013
– Interviews with
experts
– Economic
analysis
– Determine actions
required to
implement
measures
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12. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Sea level rise and altered hurricane frequencies
significantly increase losses in New York City
Expected annual losses
from storm surge and wind
(billion USD)
+ 70%
+ 168%
+ 88%
Source: www.nyc.gov: A Stronger More Resilient New York
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13. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Quantifying expected losses at zip code
level (annual expected loss)
Source: www.nyc.gov: A Stronger More Resilient New York
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14. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Loss frequency curves
(the frequency of a loss equaling or
exceeding a specific value)
Source: www.nyc.gov: A Stronger More Resilient New York
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15. Gulf Coast case
CONFIDENTIAL | RESTRICTED DISTRIBUTION
Identifying the most cost effective resilience
building options
Benefit (loss
Cost1
$ Billions
Residential/
commercial
averted)2
$ Billions
Improved building codes
2
Beach nourishment
3
Wetlands restoration3
4
Levee systems3
5
Improved standards for
offshore platforms
10
6
Floating production
systems
11
7
Replacing semi-subs with
drill ships
8
Infrastructure/
Environmental
1
Levees for refineries and
petrochemical plants
9
Improving resilience of
electric utility systems
6
x
0.7
9
1
2
17
0.7
2
6
3.3
• There will be a strong
need for leadership in
the gulf coast, in order
for these actions to
occur
3.8
4
0.7
14
• There may be need for
broad policy support to
incentivize private capital
investment, e.g.,
by subsidizing homes in
low-income areas
built to higher building
codes
1.3
9
Oil and gas
Electric utility
Total
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1.6
4
5
0.5
10
15
1.0
15
64
Average
C/B ratio
68
1 Total capital and operational costs, discounted, across 20
years
2 Total loss averted, discounted, across 20 years
3 Included despite high C/B ratios due to strong co-benefits,
risk aversion
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16. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Significant economic value is at risk –
40-65% of losses can be averted costeffectively
6.1
20
total expected loss today
residual loss 2030
cost-effectively avertible loss 2030
18
16
14
annual expected 12
10
losses as %
of local GDP
8
6.0
7.1
0.8
6
4
2
4.2
2.6
1.1
1.6
0.4
1.4
4.7
5.9
3.1
2.1
1.8
0.0
1.1
0
high GDP country
Swiss Re Global Partnerships | October 31, 2013
low GDP country
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17. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Insurance is suited for low frequency,
high severity events
Case study India
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18. CONFIDENTIAL | RESTRICTED DISTRIBUTION
The Solutions
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19. CONFIDENTIAL | RESTRICTED DISTRIBUTION
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
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20. CONFIDENTIAL | RESTRICTED DISTRIBUTION
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 million
 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
Swiss Re Global Partnerships | October 2013
January 31, 2013
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21. CONFIDENTIAL | RESTRICTED DISTRIBUTION
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 million
 The mechanism will be triggered by the intensity of the event
(modelled loss triggers)
 The facility responded to events and made payments:
– Dominica & St. Lucia after earthquake (2007)
– Turks & Caicos after Hurricane Ike (2008)
– Haiti , Barbados, St. Lucia, Anguilla and St. Vincent (2010)
Involved parties
 Reinsurers: Swiss Re and other overseas reinsurers
 Reinsurance program placed by Guy Carpenter
 Derivative placed by World Bank Treasury
Swiss Re Global Partnerships | October 2013
January 31, 2013
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22. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Case study Haiti:
The Microinsurance Catastrophe
Risk Organization (MiCRO)
Solution features

Insured perils: Hurricane, earthquake and rainfall

Payments are made to microfinance borrowers post-disaster to reduce their
loans and provide emergency cash

Parametric and basis risk policies are distributed through a local Haitian
microfinance institution, Fonkoze

Trigger: Index measured at Fonkoze branches in Haiti

Basis risk absorbed by new donor funded company, MiCRO

Inception: March 2011
Involved parties

Insured: Fonkoze

Sole Reinsurer: Swiss Re

Other partners: MercyCorps, CaribRM, Guy Carpenter
Background information

Haiti is a nation that is susceptible to catastrophes and is unprepared for the
costs of response

Prior to the setup of MiCRO, Fonkoze's clients bore 100% of natural disaster
risk

MiCRO was named “Company Launch of the Year” at The Review magazine’s
annual Worldwide Reinsurance Awards in September 2011.
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23. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Case study Canada:
Wildfire suppression cost insurance
Solution features
 Insured peril: Wildfire
 Payment to offset wildfire suppression costs of the
Government of the Province of Alberta
 The insurance cover allows for budget planning certainty
 Semi-parametric solution: The loss is calculated by
multiplying the area burnt in hectares with CAD 300 per
hectare
 The Government of Alberta provides Swiss Re with monthly
reports of the suppression costs, number of wildfires, and
area burnt
 Annual cover of CAD 100m above CAD 100m retention
 Inception: 2008
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24. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Knowledge Sharing
Increasing Climate Resiliency

Founding sponsor of Climate Week
NYC

Mind the Risk report
– Calculated affected population and lost
economic productivity for 616
metropolitan areas globally.

100 Resilient Cities Challenge
– Support at least 100 cities in the next
three years to appoint Chief Resilience
Officers (CRO), create resilience
strategies, and establish a CRO support
network to share information and best
practices.
Swiss Re Global Partnerships | October 31, 2013
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25. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Contact Information
Alex Kaplan
Public Sector
Senior Client Manager
Swiss Re America Holding Corp.
101 Constitution Ave. NW, Suite 700
Washington, DC 20001
USA
Tel +1 (202) 742-4623
Fax +1 (202)742-4630
Alex_Kaplan@swissre.com
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26. CONFIDENTIAL | RESTRICTED DISTRIBUTION
Thank you

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Legal notice
©2013 Swiss Re. All rights reserved. You are not permitted to create any
modifications or derivatives of this presentation or to use it for commercial
or other public purposes without the prior written permission of Swiss Re.
Although all 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 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 and/or consequential loss
relating to this presentation.
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