CelsiusPro launches parametric quake & cyclone emergency cash cover

by Artemis on August 30, 2017

Swiss headquartered weather index insurance and parametric risk transfer specialist CelsiusPro AG has launched a new disaster insurance solution designed to rapidly pay out emergency cash when earthquakes or tropical cyclones strike.

CelsiusPro has been offering weather derivatives and index insurance for years but this is its first parametric emergency cash insurance product, recognising that rapid pay outs and distribution of cash is vital after disasters strike.

It’s another example of a parametric product that will eventually require reinsurance market support, if successful and could be attractive to ILS fund managers looking to move into emerging regions.

Mark Rüegg, CEO of CelsiusPro, explained; “Providing a fast and efficient payout to bridge the first weeks after a disaster is critical for the survival and future economic prosperity of the affected areas. In order to provide cash immediately to cope with the catastrophe, we are launching parametric insurance for earthquakes and tropical cyclones.”

The products are available to the Philippines nationwide and also on a global basis, as CelsiusPro says it has the ability to model the effect of catastrophic events in high-resolution globally.

The company notes that parametric insurance solutions are based on the actual event data, from official and third-party reporting agencies. With payouts linked directly to the intensity of a catastrophe event and not requiring a lengthy claims assessment damages incurred, parametric insurance loss payments can be distributed much more quickly to aid recovery.

CelsiusPro says it is already in advanced discussions with local insurers in countries such as the Philippines to help them introduce new catastrophe insurance products for their clients.

CelsiusPro undertakes structuring, pricing and execution of the policies and their settlement, on behalf of partners. Noting that the Philippines government itself recognises the importance of parametric triggers for disaster insurance, having launched its own parametric insurance project with the support of the World Bank recently.

CatPro Earthquake is CelsiusPro’s emergency cash parametric earthquake insurance product. The trigger is based on the peak spectral acceleration (PSA) and peak ground acceleration (PGA) of an earthquake in the location of an insured.

“PSA and PGA data is provided with a 2 by 2 km resolution about the maximum acceleration that occurs during an earthquake at a given location on the surface. The earthquake loss is estimated by PSA data provided by the US Geological Survey, and based on a pre-defined loss settlement process the emergency cash amount is paid to the policyholder within days of a disaster,” the company explained.

CatPro Tropical Cyclone is the equivalent but for cyclone emergency cash insurance, with triggers linked to maximum sustained winds and the radius of maximum winds during a storm, using data from recognised meteorological agencies. CelsiusPro said it has developed a quantitative risk model specifically for this parametric product, to perform temporal and spatial interpolation of storm data between the officially available measurement points.

The company believes that the “significant increase in granularity” of this product enables it to offer a nationwide parametric tropical cyclone insurance product to the Philippines.

CelsiusPro policies are dealt with and administered via the firms online technology platform, keeping costs low. Automated pricing and calculation of triggers means payouts can be made rapidly and cash disbursed almost immediately after events.

CelsiusPro said that the parametric emergency cash products are suitable for insurance companies, government agencies and microfinance institutions in regions at risk of disasters and can easily be replicated in any potential market around the globe.

Such products would also be suitable to corporations looking to reduce their deductibles on wind and quake policies, or for those just seeking to secure a layer of cover that can payout very quickly and provide recovery funds.

The use of parametric triggers in commercial insurance scenarios would need much greater reinsurance support, but can also provide significant benefits for covering business interruption caused by catastrophes.

Of course the concept of an emergency cash insurance product also applies to much larger organisations, as funds to recover from disaster are required by corporations, insurance and reinsurance firms, however the key is in finding how to calibrate parametric triggers to fit alongside (benath/above/beside) indemnity type coverage.

CelsiusPro is targeting the Philippines with this product, but has the ability to roll it out globally if demand allows.

There has been something of a resurgence of interest in parametric coverage in the last year, with an increasing number recognising its importance in disaster relief, emergency funding and also as a risk transfer tool calibrated to payout based on specific disaster parameters.

Philippines cat bond still planned, will expand new parametric insurance

by Artemis on August 23, 2017

The Philippines government is still planning to sponsor a sovereign catastrophe bond, in order to further enhance its national level disaster risk financing, and the recently announced parametric disaster insurance pilot is expected to be expanded to cover the entire country.

The recently arranged parametric disaster insurance pilot was launched with World Bank support and global reinsurance and ILS market backing covering just 25 of the Philippines 81 provinces.

The parametric insurance pilot is underpinned by reinsurance capital through a catastrophe swap arrangement, which has been backed by some of the world’s largest reinsurers and also the largest catastrophe and weather insurance linked investment manager Nephila Capital.

According to reinsurer Swiss Re, which supported the set up and reinsurance of the parametric disaster insurance scheme, the Philippines will aim to expand this out to cover the entire country, a move which could see the amount of capacity required to back the scheme multiplied by more than three times (based on the $200m+ of risk transferred for 25 provinces today).

Thomas Kessler, Head of Swiss Re’s Global Partnerships team for the South East and East Asia region, explained; “It is the country’s stated ambition to scale up the subnational coverage to all 81 provinces in the coming years, helping Philippines to transition from a highly risk exposed country to one with a comprehensive disaster risk financing strategy that few others can match.”

The Philippines is gradually putting in place a tiered approach to managing, financing and transferring disaster risks, with the goal being to help the national and local government players to better respond to disasters, while helping asset owners to protect themselves and ultimately to cover more lives and livelihoods.

At the national level the Philippines already has its $500 million catastrophe contingent credit line from the World Bank and access to sources of international aid, but the government has been working towards plans to put in place a sovereign catastrophe bond for some years now (we first began writing about its cat bond ambitions back in 2010).

We understand that the work got very close to a catastrophe bond being issued for the Philippines in 2015, but that political changes in the country delayed the process at the time.

It’s encouraging to learn then that the Philippines catastrophe bond remains firmly on the agenda, with a number of market sources suggesting that work is ongoing regarding this and a Philippine government source saying that a late 2017 issuance is possible, although not guaranteed as the country looks to augment its sovereign disaster risk protection using the capital markets.

A diagram published by Swiss Re also confirms that the catastrophe bond remains on the table, as part of the national level disaster risk financing strategy for the Philippines.

The diagram above also shows the long-discussed catastrophe risk pool for households, which would enable individuals and homeowners to acquire coverage for specific perils, such as typhoons and earthquakes. This pool was also expected to have launched some time ago with backing from global reinsurance markets, but has seemingly been delayed as well.

This tiered approach to disaster risk transfer and financing could, in the future, garner significant support from the capital markets and ILS investors.

The ILS market is already participating in the mid-tier subnational parametric insurance facility cat swap, through Nephila’s involvement. As this pilot gets rolled out to all 81 provinces the need for capacity to back the facility will grow dramatically, likely attracting more ILS fund managers to participate in reinsuring it.

The household level catastrophe pool for private assets could also benefit from a cat swap like structure to underpin the policies, which could again be suited to ILS market participation.

Finally, the top-tier national level catastrophe bond, which seems still to be on the cards, would also bring ILS capacity into the Philippines disaster risk financing arrangements.

Being a tiered structure, featuring parametric disaster insurance in the lower two levels (the cat pool and pilot), perhaps as these scale the benefits of additional capital market support may also be required, and a catastrophe bond become preferable to the cat swap arrangement.

If the parametric disaster insurance backing can be structured as a multi-year reinsurance arrangement the benefits of a catastrophe bond may become more apparent, as ILS investors would be more eager to support this. Then the Philippines could benefit from much broader syndication of its disaster risks.

It would also be interesting to see whether the Philippines can leverage the appetite of ILS investors and funds to support its disaster risk financing needs in order to grow the coverage provided by the lower two tiers.

Sovereign catastrophe bonds could be structured using triggers that closely match to the subnational and household level initiatives, meaning that cat bonds could provide the reinsurance required to back these efforts and also be utilised as an efficient source of capacity to help them scale up.

The work of the World Bank and firms such as Swiss Re, GC Securities and the support of ILS market actors such as Nephila Capital, has been instrumental in getting the Philippines disaster risk financing strategy to this stage. It’s not been an easy task over the seven years or more that this work has been ongoing.

But the end-result, of a tiered disaster risk financing strategy that leverages the wealth of reinsurance and ILS capacity to provide responsive disaster risk insurance that protects assets at all levels and benefits the population as well, is worth the significant effort.

WMO opens new Regional Office in Singapore

The World Meteorological Organization (WMO) has opened a new office for the Asia-Pacific region in Singapore to improve coordination on hazards ranging from floods to fires and to strengthen meteorological services for rapidly evolving economic sectors such as air and marine transport. The Regional Office is being hosted by the Meteorological Service Singapore (MSS) and will serve as the nerve centre for WMO’s programmes in the region.

WMO Secretary-General Petteri Taalas and Singapore Minister for the Environment and Water Resources Masagos Zulkifli, officiated the opening ceremony of the new Regional Office for Asia and the South-West Pacific. The ceremony was held at the MSS Centre for Climate Research Singapore (CCRS), where the Office is co-located. This is the first time a WMO Regional Office will be located within Asia and the South-West Pacific and the second Regional Office to relocate from Geneva.

Many countries in the Asia-Pacific region are already feeling the impact of climate change, including more frequent heat-waves, more intense tropical storms, and coastal inundation resulting from sea level rise, threatening food, health and water security. Air pollution and trans-boundary haze, environmental degradation and water stress add to the challenges.

“Weather, climate and water know no national borders. We need regional cooperation to improve resilience and adaptation to climate change from human activities and to prepare for naturally occurring events such as the powerful 2015/2016 El Niño, which caused widespread drought in Asia and the Southwest Pacific,” said Mr Taalas.

“In the last decades, the countries of the Asia-Pacific region have been exposed to rising land and ocean surface temperatures and weather and climate events of increased intensity and frequency,” said Mr Taalas. “The year 2017 is proving to be no exception to that trend.”

Strengthening cooperation in Asia and South-West Pacific

Asia and the South-West Pacific is one of the world’s most dynamic economic regions, especially for information and communications technology, transportation and renewable energy. It is a vast region with a great diversity of geography, climate and ecosystems, but with widening gaps in economies, technologies and capacities.

An important priority for the Regional Office is therefore strengthening regional cooperation and coordination and implementing WMO’s capacity-development initiatives. This will benefit not just WMO Members but also the user sectors and stakeholders that they serve.

A key beneficiary is the aviation sector, one of the most weather-sensitive of all economic sectors. The sector is undergoing a transformation driven by rapid growth. Global air traffic is doubling every 15 years, with the strongest growth centred on the Asia Pacific region. There is an increasing need within the sector for more effective and efficient operations, while ensuring that safety is preserved. This in turn drives demand for cutting-edge aeronautical meteorological services, which need to be seamless and coordinated at the regional level.

Addressing challenges in the Region

Opening of new WMO regional office in SingaporeNatural and environmental hazards are another area of concern. The Regional Office will work with Members to foster greater cooperation in multi-hazard early warning for the region. Such efforts will be complemented by capacity-building programmes. The Regional Office will act as a forum for regional challenges such as trans-boundary haze arising from large-scale land and vegetation fires.

“Climate change, the impending exponential growth in global air traffic demand, and the transformation of global air management systems to be more interoperable and harmonised, will significantly change the operating paradigm for our national meteorological services. Maintaining status quo is no longer an option. Meteorological information must be of higher precision and accuracy to tackle these three new challenges effectively,” said Mr Masagos. “This is why Singapore has been investing heavily in cutting-edge climate research and building up our expertise to improve our understanding of the dynamic tropical weather patterns in our region. This will enhance the precision of our weather predictions.”

“By strengthening our capabilities, we hope to deepen MSS’ contribution and regional role in climate science, aeronautical meteorology, and transboundary hazards. We are excited to have WMO’s physical presence in this part of the world, and look forward to the many exciting opportunities ahead for regional collaboration and capacity-building efforts in the region,” said Mr Masagos.

Connecting WMO Members

Singapore was selected because of its central position relative to WMO Asia and Pacific Member states, flight connectivity, and modern and accessible IT infrastructure. The Regional Office is headed by WMO Asia-Pacific Regional Director Chung Kyu Park, who will relocate from WMO headquarters in Geneva.

“We are honoured and delighted that WMO decided to set up its Regional Office for Asia and the South-West Pacific here in Singapore. As the host, MSS will support and contribute to WMO’s capability-building initiatives for meteorological services in this region,” said Mr Masagos.

Listen to interview with WMO Asia-Pacific Regional Director Chung Kyu Park