Insurance Markets: Private Sector Opportunities

1. DRR Financing Workshop, Istanbul, 4-5 October 2018
Andy Palmer, Swiss Re Capital Markets
Insurance Markets:
Private Sector Opportunities

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Insurance Markets: Private Sector Opportunities
Examples of Innovative Public Sector Risk Transfer Solutions
India
Weather
insurance
for farmers
Uruguay
Energy production
shortfalls
due to drought
Caribbean
Hurricane,
earthquake and
excess rainfall risk
Pacific Islands
Earthquake and
tropical cyclone risk
Vietnam
Agriculture
yield cover
Beijing
Agricultural risk
Turkey
Earthquake pool
Bangladesh
Flood insurance
African Risk Capacity
Government drought
insurance pool
Florida
Hurricane risk
United Kingdom
Flood risk
Guangdong
Typhoon/rainfall
Thailand
Crop insurance
Mexico
Earthquake/hurricane
and livestock risk
Louisiana
Hurricane risk Heilongjiang
Multiperil disaster risk
Kenya
Livestock
insurance
California/Utah
Earthquake risk
Guatemala
Nat cat business
interruption risk
United States
Flood risk
Philippines
Earthquake and
tropical cyclone risk
IDA countries
Pandemic outbreak

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Source: Swiss Re CatNet, Regional Seismic Hazard Zones
Insurance Markets: Private Sector Opportunities
Earthquake is a Major Peril in the Region

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Key Highlights:
• The second largest cat bond, the largest sovereign-sponsored cat bond and
the largest parametric cat bond in history
• Covered countries: Chile ($500m, 3 years), Colombia ($400m, 3 years),
Mexico ($260m, 2 years) and Peru ($200m, 2 years)
• Covered peril: Earthquake
• Parametric trigger: Cat-in-the-grid earthquake magnitude threshold
• Payouts to be used by Pacific Alliance members to recover faster from major
earthquakes and protect their economic development
• Customized coverages in line with each country’s exposure and overall
disaster risk financing strategy
• Due to the high demand from investors, the transaction was upsized during
marketing and competitive pricing was secured for each country
• Swiss Re Capital Markets led the transaction as Joint Structurer and Joint
Bookrunner, and Swiss Re acted as transformer for Mexico
Investors
Early in 2018, Swiss Re Capital Markets closed a USD 1.36bn transaction transferring earthquake risk
for the governments of Mexico, Chile, Peru and Colombia through the World Bank platform
Insurance Markets: Private Sector Opportunities
Case Study: Pacific Alliance Catastrophe Bond

5. DRR Financing Workshop | Istanbul, 4-5 October 2018
Insurance Markets: Private Sector Opportunities
Case Study: Pacific Alliance Catastrophe Bond – Parametric Structure
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• All countries transacted with very similar structures
which essentially are a collection of mini “cat-in-
the-boxes” otherwise known as “cat-in-the-grid”
• Each grid has its own distinct magnitude
thresholds which correspond to different payout
percentages (“Payout Nodes”)
• For example, 8.1, 8.3, and 8.5 correspond to 30%,
70%, 100% respectively)
• For certain grids near major city centers, tiered
depth conditions were incorporated to enable
lower magnitude thresholds for shallow
earthquakes which correlate with significant
damage in those city centers
• The payout percentages are linearly interpolated
between the Payout Nodes
• The only variables used in determining loss are
epicenter, depth, location, and date of occurrence
Example Magnitude Grids

6. DRR Financing Workshop | Istanbul, 4-5 October 2018
Insurance Markets: Private Sector Opportunities
Case Study: Pandemic Emergency Financing Facility (PEF)
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Key Highlights:
• PEF created a new insurance market for pandemic risk: First ever parametric
insurance cover for response costs to pandemics of new influenza and other viruses in
all of the World’s 77 poorest countries (IDA)
• Leverages capital markets to fill pandemic response funding gap before large scale
donor funding is mobilized, thereby advancing the global health security as endorsed
by the World Bank’s president Jim Kim and G7 leaders
• Designed to improve transparency and accountability in global and national response
efforts, to reduce overall response costs and ultimately save lives
• PEF is the first solution focused on the prevention of a catastrophe rather than on the
payout of post-event claims
• Payouts will go to multi-lateral response agencies, such as the WHO and accredited
partners, and the health systems of affected countries
• Germany and Japan were the major donor countries
• Swiss Re Capital Markets acted as Joint Lead Structurer and Sole Bookrunner for the
bonds and Lead Placement Agent for the swaps
• Covered Diseases: New influenza, Corona- and Filoviruses (e.g. Ebola), and others
• Parametric Trigger: Once the viruses reach a certain level of contagion as defined by
the number of cases and deaths, the speed of spread, geography, etc. as reported by
the World Health Organization
• Risk Period: 3 years
In July 2017, Swiss Re Capital Markets closed USD 425m cat bonds and swaps transferring emerging pandemic
risk to the capital markets and re/insurance industry through the World Bank platform

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Insurance Markets: Private Sector Opportunities
Case Study: Heilongjiang Provincial Government –
Multi-Peril Parametric Disaster Relief Coverage
Key Highlights:
▪ Provincial government insures its fiscal contingent liabilities for disaster
relief in 28 counties classified as less poverty resilient
▪ Payouts to be used for disaster relief and post disaster reconstructions of
properties and infrastructure
▪ Covered perils: Flood, excess rain, drought and temperature
▪ Parametric Trigger: Designed to reflect significant yield losses of
agricultural crops based on satellite flood footprint index, precipitation
index, drought (temperature & precipitation) and low temperature
▪ Risk Period: 1 year
▪ Sum Insured: USD 360m
▪ Swiss Re provides 80% quota share reinsurance
Key Parties:
▪ Reinsurer and product designer: Swiss Re
▪ Calculation Agent: China Meteorological Agency
▪ Insured: Sunlight Agro Mutual Insurance

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9. DRR Financing Workshop | Istanbul, 4-5 October 2018
Legal Notice
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