Catastrophe Risk Financing in Developing Countries

Principles for Public Intervention

J. David Cummins, Olivier Mahul

• Publisher: World Bank Publications
• Year: 2008
• eBook ISBN: 9780821377376
• Edition: 0
• Topic: Politics & International Relations
• Subtopic: Environment & Energy Policy
• Index: Politics & International Relations

'Catastrophe Risk Financing in Developing Countries' provides a detailed analysis of the imperfections and inefficiencies that impede the emergence of competitive catastrophe risk markets in developing countries. The book demonstrates how donors and international financial institutions can assist governments in middle- and low-income countries in promoting effective and affordable catastrophe risk financing solutions. The authors present guiding principles on how and when governments, with assistance from donors and international financial institutions, should intervene in catastrophe insurance markets. They also identify key activities to be undertaken by donors and institutions that would allow middle- and low-income countries to develop competitive and cost-effective catastrophe risk financing strategies at both the macro (government) and micro (household) levels. These principles and activities are expected to inform good practices and ensure desirable results in catastrophe insurance projects. 'Catastrophe Risk Financing in Developing Countries' offers valuable advice and guidelines to policy makers and insurance practitioners involved in the development of catastrophe insurance programs in developing countries.

Table of contents

• Contents
• Foreword
• Acknowledgments
• Abbreviations
• Glossary
• Overview
• Toward a Country Catastrophe Risk Financing Framework
• Why Should Donors Intervene in Catastrophe Risk Markets?
• How Should Donors Intervene in Catastrophe Risk Markets?
• What Roles for the Donor Community?
• 1. Introduction
• 2. Market Imperfections and Catastrophe Insurance
• 3. Principles for Public Intervention in the Catastrophe Insurance Markets
• 4. Roles for the Donor Community
• References
• Appendix 1. World Bank List of Economies
• Appendix 2. Reference Catastrophe Losses
• Appendix 3. Catastrophe Risk Modeling
• Appendix 4. Catastrophe Risk Financing Projects Supported by the World Bank and Donors
• Appendix 5. Some Recent Catastrophe Risk Financing Initiatives Supported by the World Bank and Donors
• Appendix 6. Prototype Weather-Based Crop Insurance Policy
• Appendix 7. Commercial Catastrophe Risk Models
• Appendix 8. Review of the Catastrophe Reinsurance Market
• Appendix 9. CAT Bonds and Other Risk-Linked Securities: State of the Market and Recent Developments
• Appendix 10. Catastrophe Reinsurance Pricing
• Index
• Box 1.1 GFDRR Financial and Technical Assistance
• Box 1.2 World Bank Group’s Catastrophe Risk Products and Services
• Box 2.1 Portfolio Cost of Capital
• Box 2.2 World Bank Project Reallocations After a Natural Disaster
• Box 2.3 Catastrophe (CAT) Bonds
• Box 2.4 Information Prerequisites for Reinsurers to Provide Weather Reinsurance
• Box 3.1 Basic Principles for Efficient Catastrophe Insurance
• Box 3.2 Theories of Market Intervention
• Box 4.1 Caribbean Catastrophe Risk Insurance Facility
• Box 4.2 Data Quality Issues in Middle- and Low-Income Countries
• Box 4.3 Drought Risk Assessment Model in India
• Box 4.4 Central America Probability Risk Assessment
• Box 4.5 Parametric Insurance in Middle- and Low-Income Countries
• Box 4.6 Turkish Catastrophe Insurance Pool
• Box 4.7 Livestock Indemnity Insurance Pool in Mongolia
• Box 4.8 Innovative Sovereign Risk Transfer Mechanisms
• Box 4.9 World Bank Contingent Loan
• Box A5.1 Catastrophe Insurance Pools
• Box A5.2 Index-Based Agricultural Insurance
• Box A5.3 Main features of CCRIF
• Figure 1.1 Direct Losses from Natural Disasters, Worldwide
• Figure 1.2 Average Annual Direct Losses from Natural Disasters Compared to GDP
• Figure 2.1 Developed Insurance Market Structure
• Figure 2.2 Technical Catastrophe Insurance Premium Decomposition
• Figure 2.3 Non-life Insurance Penetration
• Figure 2.4 Direct Losses From Natural Disasters Covered by Insurance (Percentage)
• Figure 2.5 Economic Losses from Natural Disasters Covered by Donor Assistance (Percentage)
• Figure 2.6 Global Reinsurance Capital
• Figure 2.7 Global Property Catastrophe Excess of Loss Reinsurance Coverage, By Region
• Figure 2.8 Catastrophe Bonds: Annual Number of Transactions and Issue Volume
• Figure 2.9 Catastrophe Reinsurance: World on Line
• Figure 2.10 U.S. Reinsurance Rate on Line versus Loss on Line
• Figure 2.11 Catastrophe Reinsurance Multiple, U.S. Market
• Figure 2.12 Catastrophe Bond Pricing
• Figure 2.13 Catastrophe Bonds: Pricing of New Issues
• Figure 2.14 Pricing of Catastrophe Bonds and Comparable Corporate Bonds
• Figure 2.15 Comparison of Peak, Non-peak, Multiple, and Diversifying Peril Transactions
• Figure 3.1 Public-Private Partnership in Catastrophe Risk Financing
• Figure A3.1 Probabilistic Catastrophe Risk Model Modules
• Figure A3.2 Loss Exceedance Curve
• Figure A5.1 Catastrophe Risk Layering
• Figure A5.2 Timeliness of Financial Products
• Figure A5.3 CCRIF Risk Financing Structure 2007–08
• Figure A6.1 Term-Sheet Features for a Weather-Based Crop Insurance Contract (Rainfall)
• Figure A8.1 Worldwide Insured Catastrophe Losses (2006 Monetary Units)
• Figure A8.2 Global Reinsurers—Net Premiums Written by Country, 2005
• Figure A8.3 Reinsurance Premiums Ceded: U.S. Professional Reinsurers vs. Alien Reinsurers
• Figure A8.4 Premiums Ceded to Alien Reinsurers, by Jurisdiction, in 2005
• Figure A8.5 U.S. Reinsurers: Leverage Ratios
• Figure A8.6 Global Reinsurance Industry Combined Ratio, 1988–2006
• Figure A8.7 Major Reinsurers’ Combined Ratios for 2005
• Figure A8.8 Structure of a Typical Sidecar
• Figure A8.9 Catastrophe Reinsurance: World Rate Online Index
• Figure A8.10 Reinsurance Pricing
• Figure A9.1 CAT Bond with Single-Purpose Reinsurer
• Figure A9.2 Catastrophe (Risk) Swap
• Figure A9.3 Non-Life CAT Bonds: New Issues
• Figure A9.4 CAT Bonds: Risk Capital Outstanding
• Figure A9.5 CAT Bond Issues by Trigger Type
• Figure A9.6 CAT Bond Transactions by Bond Tenor
• Figure A9.7 CAT Bond Issue Volume by Financial Rating
• Figure A9.8 CAT Bonds: New Issue Volume Purchased by Investor Type
• Figure A9.9 CAT Bond Premiums and Expected Loss
• Figure A9.10 Catastrophe Reinsurance Ratios of Rate on Line to Loss on Line
• Table 1.1 Major Disasters in the Last 40 Years
• Table 2.1 Non-Life Premium Volume by Region (2006)
• Table 2.2 Non-Life Insurance Density and Penetration (2006)
• Table 2.3 Summary of Market Imperfections in Low- and Middle-Income Countries
• Table A1.1 World Bank List of Economies
• Table A2.1 List of Catastrophe Direct Losses
• Table A4.1 Property Catastrophe Insurance for Homeowners
• Table A4.2 Agricultural Insurance
• Table A4.3 Sovereign Catastrophe Risk Insurance
• Table A5.1 Government-Sponsored Catastrophe Insurance Programs
• Table A5.2 Catastrophe Program Design Variables
• Table A5.3 Advantages and Challenges of Index-Based Insurance
• Table A5.4 Mexico Catastrophe Bond Contract Features
• Table A7.1 Commercial Catastrophe Risk Models
• Table A8.1 U.S. Hurricanes-25 Largest Insured Property Losses (Billions of 2005 $)
• Table A8.2 Top 40 Global Reinsurance Groups
• Table A8.3 Dependence of U.S. Insurers on Alien Reinsurance
• Table A8.4 New Capital in Bermuda: The Classes of 1993, 2001, and 2005
• Table A9.1 New Capital Raised Through Sidecars in 2006 ($ Millions)
• Table A10.1 Risk Charge and Premium for Hypothetical Reinsurance Policy
• Table A10.2 Hypothetical Reinsurance Premiums