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CONFIDENTIAL | RESTRICTED DISTRIBUTION

Public-Private Partnerships in
Risk Management
Addressing the Costs of Climate Cha...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Massive gap between total and insured
losses shows insurance potential
Natural and...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Insured catastrophe losses, 1970–2012
120

2005:
Hurricanes Katrina, Rita, Wilma

...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Growth of values is the main driver of
increasing natural catastrophe losses
Shang...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

The US has a high level of exposure to
climate change


Total insured value of pr...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Closing the Gap: Including ex-ante
instruments into the overall risk financing
str...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Systematic risk management
approach for natural disasters
Identification

Assessme...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Economics of
Climate Adaptation

Please find the full study at www.swissre.com/cli...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Climate-resilient development needs to
address total climate risk


Adaptation me...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

We've conducted climate adaptation
studies in 17 regions of the world
U.K. / Hull
...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Case study methodology

Where and
from what is
the State
most at
risk?

What is th...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Sea level rise and altered hurricane frequencies
significantly increase losses in ...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Quantifying expected losses at zip code
level (annual expected loss)

Source: www....
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Loss frequency curves
(the frequency of a loss equaling or
exceeding a specific va...
Gulf Coast case
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Identifying the most cost effective resilience
building options
Be...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Significant economic value is at risk –
40-65% of losses can be averted costeffect...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Insurance is suited for low frequency,
high severity events
Case study India

Swis...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

The Solutions

Swiss Re Global Partnerships | October 31, 2013

18
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Case study United States:
Alabama – First parametric cover for a
government in an ...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Case study Mexico:
MultiCat - Funding for immediate
relief efforts after disasters...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Case study Caribbean:
Caribbean Catastrophe Risk
Insurance Facility (CCRIF)
Soluti...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Case study Haiti:
The Microinsurance Catastrophe
Risk Organization (MiCRO)
Solutio...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Case study Canada:
Wildfire suppression cost insurance
Solution features
 Insured...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Knowledge Sharing

Increasing Climate Resiliency


Founding sponsor of Climate We...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Contact Information

Alex Kaplan
Public Sector
Senior Client Manager
Swiss Re Amer...
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Thank you
CONFIDENTIAL | RESTRICTED DISTRIBUTION

Legal notice
©2013 Swiss Re. All rights reserved. You are not permitted to create ...
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Climate Change & the Bottom Line conference- Keynote, Alex Kaplan, Swiss Re

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Climate Change & the Bottom Line conference- Keynote, Alex Kaplan, Swiss Re

  1. 1. CONFIDENTIAL | RESTRICTED DISTRIBUTION Public-Private Partnerships in Risk Management Addressing the Costs of Climate Change Alex Kaplan October 31, 2013
  2. 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 Swiss Re Global Partnerships | October 31, 2013 2 2010
  3. 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 3
  4. 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 Swiss Re Global Partnerships | October 31, 2013 4
  5. 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. Swiss Re Global Partnerships | October 31, 2013 5
  6. 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. Swiss Re Global Partnerships | October 31, 2013 6
  7. 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 7
  8. 8. CONFIDENTIAL | RESTRICTED DISTRIBUTION Economics of Climate Adaptation Please find the full study at www.swissre.com/climatechange Swiss Re Global Partnerships | October 31, 2013 8
  9. 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. Swiss Re Global Partnerships | October 31, 2013 9
  10. 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 Swiss Re Global Partnerships | October 31, 2013 10
  11. 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 11
  12. 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 Swiss Re Global Partnerships | October 31, 2013 12
  13. 13. CONFIDENTIAL | RESTRICTED DISTRIBUTION Quantifying expected losses at zip code level (annual expected loss) Source: www.nyc.gov: A Stronger More Resilient New York Swiss Re Global Partnerships | October 31, 2013 13
  14. 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 Swiss Re Global Partnerships | October 31, 2013 14
  15. 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 Swiss Re Global Partnerships | October 31, 2013 6 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 15
  16. 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 16
  17. 17. CONFIDENTIAL | RESTRICTED DISTRIBUTION Insurance is suited for low frequency, high severity events Case study India Swiss Re Global Partnerships | October 31, 2013 17
  18. 18. CONFIDENTIAL | RESTRICTED DISTRIBUTION The Solutions Swiss Re Global Partnerships | October 31, 2013 18
  19. 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 Swiss Re Global Partnerships | October 31, 2013 19
  20. 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 20
  21. 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 21
  22. 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. Swiss Re Global Partnerships | October 31, 2013 22
  23. 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 Swiss Re Global Partnerships | October 31, 2013 23
  24. 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 24
  25. 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 Swiss Re Global Partnerships | October 31, 2013 25
  26. 26. CONFIDENTIAL | RESTRICTED DISTRIBUTION Thank you
  27. 27. CONFIDENTIAL | RESTRICTED DISTRIBUTION 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. Swiss Re Global Partnerships | October 31, 2013 27

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