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2018 DRR Financing 3.2 Andy Palmer

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Insurance Markets: Private Sector Opportunities

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2018 DRR Financing 3.2 Andy Palmer

  1. 1. DRR Financing Workshop, Istanbul, 4-5 October 2018 Andy Palmer, Swiss Re Capital Markets Insurance Markets: Private Sector Opportunities
  2. 2. DRR Financing Workshop | Istanbul, 4-5 October 2018 2 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
  3. 3. DRR Financing Workshop | Istanbul, 4-5 October 2018 3 Source: Swiss Re CatNet, Regional Seismic Hazard Zones Insurance Markets: Private Sector Opportunities Earthquake is a Major Peril in the Region
  4. 4. DRR Financing Workshop | Istanbul, 4-5 October 2018 4 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. 5. DRR Financing Workshop | Istanbul, 4-5 October 2018 Insurance Markets: Private Sector Opportunities Case Study: Pacific Alliance Catastrophe Bond – Parametric Structure 5 • 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. 6. DRR Financing Workshop | Istanbul, 4-5 October 2018 Insurance Markets: Private Sector Opportunities Case Study: Pandemic Emergency Financing Facility (PEF) 6 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
  7. 7. DRR Financing Workshop | Istanbul, 4-5 October 2018 7 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
  8. 8. DRR Financing Workshop | Istanbul, 4-5 October 2018 8
  9. 9. DRR Financing Workshop | Istanbul, 4-5 October 2018 Legal Notice 9 ©2018 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.

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