WASHINGTON, June 9, 2008 – The 16 members of the Caribbean Catastrophe Risk Insurance Facility (CCRIF) have renewed their 2008 policies, ensuring that their governments will have immediate access to liquidity if hit by a hurricane or earthquake.
The CCRIF was launched in June 2007, on behalf of the Caribbean Community (CARICOM) heads of government and under the guidance of the World Bank with donor funding, to provide immediate liquidity to Caribbean governments after a catastrophic hurricane or earthquake. This regional institution, registered in the Cayman Islands, is the first multi-country risk pool in the world, and is also the first insurance instrument to successfully develop a parametric policy backed by both traditional and capital markets.
“This Caribbean-owned, regional institution is the first regional disaster insurance facility in the world,” said Yvonne Tsikata, World Bank Country Director for the Caribbean. “CCRIF works as a joint reserve mechanism with transparent rules on how countries contribute and have access to liquidity in case they are affected by an earthquake or a major hurricane.”
The CCRIF is operated by Caribbean Risk Managers Ltd., with management support from Sagicor Insurance Managers Ltd. The brokerage firm Benfield Ltd. structured the renewed program after being initially appointed as the CCRIF’s sole reinsurance broker in February 2007. The programs reinsurer group has been diversified through the inclusion of Swiss Re, in addition to the existing underwriters which include Munich Re (lead reinsurer), Paris Re and Hiscox of Lloyd’s. The World Bank Treasury (through the International Bank for Reconstruction and Development – IBRD) has arranged for CCRIF to transfer a portion of the catastrophe risk to the capital markets through a cat swap transaction.
The CCRIF’s capacity to service claims is based on its own reserves combined with the financial capacity of the international markets. This allows CCRIF to respond to events that may occur only once every 1,000 years or more, achieving a higher level of resiliency than international standards.
CCRIF was able to secure US$132.5 million of claims paying capacity on the international reinsurance and capital markets. The risk financing structure consists of four layers: CCRIF retains the first layer of US$12.5 million; re-insurers underwrite the second (US$12.5 million) and third layers (US$30 million); the top layer (US$90 million) is financed with reinsurance (US$60 million) plus US$30 million coverage through a catastrophe swap between the World Bank (IBRD) and CCRIF. IBRD hedged its risk through a companion cat swap with Munich Re Capital Markets. The US$30 million swap between IBRD and CCRIF is the second transaction to enable emerging countries to use a derivative transaction to access the capital market to insure against natural disasters. The first transaction was executed by the World Bank last year, when CCRIF was launched, and was also the first time a diversified pool of emerging market countries’ catastrophe risk was placed in the capital markets.
“The renewal of this cat swap reaffirms the market’s acceptance of emerging country catastrophe risk through a derivatives instrument,” said Ivan Zelenko, Head of Derivatives and Structured Finance, World Bank Treasury. “More importantly, it reaffirms the viability of capital market solutions available to emerging countries to manage the risk of natural disasters.”
Caribbean States are highly vulnerable to natural disasters--on average, one major hurricane affects a country in the region every 2 years--and have only limited options available to respond. Work is also being considered to expand the scope of the coverage provided by CCRIF to other natural hazards such as floods and to other Caribbean territories.
CCRIF participating governments are: Anguilla, Antigua & Barbuda, Bahamas, Barbados, Belize, Bermuda, Cayman Islands, Dominica, Grenada, Haiti, Jamaica, St Kitts & Nevis, St Lucia, St Vincent & the Grenadines, Trinidad & Tobago, Turks and Caicos Islands.
For more information on the CCRIF, please visit https://www.worldbank.org/en/country/oecs.
The World Bank's bond products and investor presentation can be accessed through the website of the World Bank for bond investors (www.worldbank.org/debtsecurities). For a list of selected bonds issued recently by the World Bank, see: https://treasury.worldbank.org/recentissues.
