Global disaster bill revealed

AIR Worldwide has revealed that it estimates the insured loss from natural disasters in 2017 currently stands at US$250 billion, with global insured average annual loss pegged at US$80 billion.

The damage bill calculated by AIR annually has risen every year since 2012, with 2017 on par with record losses experienced in 2011 the firm said in its Global Modelled Catastrophe losses report.

“2017 offers a powerful reminder that the insurance industry and other stakeholders must never be complacent,” the report notes. “After a decade of below-average losses (apart from the aforementioned 2011), 2017 will surely remind not just newcomers to the industry, but even those who have spent their careers assessing and managing catastrophe risk, that preparing for large losses before they occur is critical to continued solvency and resilience.”

For businesses with an international footprint, AIR said it is vital to appreciate the impact of global disasters.

“Understanding—and owning—this risk requires knowing both the likelihood of high-loss years and the diversity of events that could produce such losses,” the report continues. “In addition, companies with global exposures and an expanding global reach should prepare for the possibility that future catastrophes will produce losses exceeding any historical amounts.”

In addition, AIR stressed that underinsurance remains a problem both in under-developed and developed nations.

Only 19% of the world’s total economic losses were estimated to be insured in 2017 with just 9% of Asia’s economic losses insured, 14% of Latin America’s, 37% of Oceania’s and 38% of North America’s.

“Through the years, Asia has remained the region with the largest proportion of uninsured risk due to relatively low insurance penetration and, in some cases, nascent insurance markets,” the report continues. “However, a substantial insurance gap exists in the United States as well, especially in the areas of flood and earthquake.”

While the protection gap is worrying for both the insurance industry and the wider community, the report notes that it can help spur product innovation within the industry while the public sector and governments are beginning to realise the importance of a proactive approach to disasters.

“Understanding the protection gap can help governments assess the risks to their citizens and critical infrastructure, and develop risk-informed emergency management, hazard mitigation, and public risk financing strategies to enhance global resilience and reduce the ultimate costs,” the report concluded.

Source: https://www.insurancebusinessmag.com/au/

Giant reinsurer liquidates entire stock portfolio to pay hurricane and earthquake costs

by Oliver Suess, Bloomberg 09 Nov 2017

For Hannover Re, the world’s third-biggest reinsurer, it’s time to take profits in the stock market.

The German company said on Wednesday that it sold its entire stock portfolio, worth about 953 million euros ($1.1 billion), to help pay for claims from hurricanes and earthquakes.

It was “time to realize the gains in our portfolio of listed equities,” chief financial officer Roland Vogel said on a call with reporters. Global stock markets have rallied for more than eight years, with many reaching records. This year, Germany’s benchmark DAX Index has advanced 17%, while the Standard and Poor’s 500 Index has added 16%.

The reinsurer booked a gain of 223.3 million euros in the third quarter on the sale of its stock portfolio, which it had built by adding large groups of shares in August 2015 and January 2016. The decision means Hannover Re will no longer need to set aside money to protect itself from the risk of a stock-market crash. It will instead use that money to grow the business in areas hit by recent disasters such as hurricanes in the Caribbean and earthquakes in Mexico, Vogel said.

The proceeds of the stock sell-off will also help Hannover Re to keep the total amount of money it distributes to shareholders unchanged, Vogel said. For 2016, the company paid out 3.50 euros a share plus a special dividend of 1.50 euros.

Hannover Re shares have gained about 6% this year, increasing the company’s market value to 13 billion euros.

Copyright Bloomberg 2017

IFC Report Finds Policy Reforms, Innovation Can Unlock Trillions in Climate Finance

Washington, D.C., November 2, 2017—Developing countries can meet climate targets promised in the landmark Paris Agreement by catalyzing trillions of dollars in private investments through a combination of smart policy reforms and innovative business models, according to a new report by IFC, a member of the World Bank Group.

The report identifies seven industry sectors that can make a crucial difference in catalyzing private investment: renewable energy, off-grid solar and energy storage, agribusiness, green buildings, urban transportation, water, and urban waste management. Already, more than $1 trillion in investments are flowing into climate-related projects in these areas. But trillions more could be triggered by creating the right business conditions in emerging markets, the report found.

“The private sector holds the key to fighting climate change,” said IFC CEO Philippe Le Houérou. “The private sector has the innovation, the financing, and the tools. We can help unlock more private sector investment, but this also requires government reforms as well as innovative business models—which together will create new markets and attract the necessary investment. This can fulfill the promise of Paris.”

IFC’s Creating Markets for Climate Business report offers several examples of such an approach. On Sunday, Egyptian officials signed an agreement to create the world’s largest solar park. IFC provided a  landmark $653 million debt package that will finance the construction of 13 solar power plants near the Egyptian city of Aswan. The agreement occurred only after a series of reforms by the government and the creation of innovative financing structures. It is expected to lower electricity generation costs and reduce Egypt’s dependence on imported fossil fuels.

The report’s findings point to specific investment opportunities including:

· Renewable energy investments could climb to $11 trillion cumulative by 2040—reforms such as renewable energy auctions, land title reforms, and supportive energy storage policy frameworks would make this possible.

· Investments in off-grid solar and energy storage can reach $23 billion a year by 2025 —if countries use differentiated tariffs, clear technical and safety standards, and targeted financial incentives while supporting new business models for community based solar such as Pay-as-You-Go and innovative finance solutions such as securitization assets.

· Trillions of dollars of agribusiness investment can become more “climate-smart”—if governments ensure property rights, good transportation infrastructure, and regulations and fiscal policies that encourage climate-smart investment while promoting improved farmer-training practices and using financial innovation to provide working capital for farmers.

· Investments in green buildings could reach $3.4 trillion cumulative by 2025 in key emerging markets—if countries adopt better building codes and standards and create targeted financial incentives such as green-building certification and mandatory benchmarking of energy use. Other important reforms should encourage new utility business models, such as green mortgages and energy service companies.

· Trillions of dollars in investments in sustainable urban transportation can be mobilized in the coming decade—if governments issue mandates to enable infrastructure investments and adopt municipal transit plans that can spur innovations, such as light rail.

· Investments in water supply and sanitation could exceed $13 trillion cumulative by 2030—for this governments would need to establish water pricing at predictable and sustainable levels to increase the creditworthiness of utilities while entering into public-private partnerships and adopting performance-based contracts.

· Investments in climate-smart urban waste management could reach $2 trillion—if cities work to attract private sector participation through improved regulatory and enforcement frameworks, using economic incentives and cost-recovery mechanisms such as feed-in tariffs, and driving waste-conscious consumer behavior.

Addressing climate change is a strategic priority for IFC. Since 2005, IFC has invested $18.3 billion of its own funds in long-term financing for climate-smart projects and mobilized an additional $11 billion from other investors. The latest report is a follow-up to the Climate Investment Opportunities report issued by IFC last year, which found that the Paris Agreement could create $23 trillion in investment opportunities for 21 emerging-market countries.

About IFC
IFC, a member of the World Bank Group, is the largest global development institution focused on the private sector in emerging markets. Working with more than 2,000 businesses worldwide, we use our capital, expertise, and influence to create markets and opportunities in the toughest areas of the world. In FY17, we delivered a record $19.3 billion in long-term financing for developing countries, leveraging the power of the private sector to help end poverty and boost shared prosperity. For more information, visit www.ifc.org

The World Benchmarking Alliance launches global consultation

Aviva, in partnership with Index Initiative, the United Nations Foundation and the Business and Sustainable Development Commission, will today launch the consultation phase of the World Benchmarking Alliance (WBA). This global multi-stakeholder initiative will develop and publish free to access, publicly available benchmarks ranking companies on their sustainability performance and contributions towards achieving the Sustainable Development Goals (SDGs).

Over the next nine months, the WBA founding partners will lead a global consultation to explore the opportunity and potential for using the benchmarks to measure, motivate, and reward business action on the SDGs. The UK, Danish and Dutch governments have committed funding to the consultation phase, in addition to funding and support from Aviva.

The launch follows Aviva Chief Executive Officer, Mark Wilson’s call at the 2015 UN General Assembly for the UN to help change the rules of the international financial system to become more sustainable and for businesses to play their part in contributing to delivery of the SDGs.

The Business and Sustainable Development Commission (BSDC) supported the concept and creation of corporate Global Goal benchmarks and the World Benchmarking Alliance in its landmark report “Better Business, Better World”. The report, published in January 2017, outlined the $12 trillion economic opportunity for business in pursuing sustainable and inclusive business models and the creation of 380 million jobs by 2030.

Speaking today in New York at the UN Global Compact Leaders Summit on the margins of the 72nd session of the UN General Assembly in “Global Goals Week”, Mark Wilson, said:

“Our idea is simple. We turn the SDGs into a corporate competitive sport. We draw up transparent data on performance towards meeting the SDGs, and we rank companies according to how well they are doing. This will motivate a race to the top and is what the proposed World Benchmarking Alliance is all about.”

Kathy Calvin, President and CEO of the UN Foundation, said; “Business today faces a simple choice, embrace sustainable development or risk getting left behind. Benchmarks create a common mechanism for companies to accelerate their sustainability performance and – more importantly – they change the status quo by enabling business, government and civil society to hold each other accountable in creating a world that is good for business, people, and the planet.”

Wim Leereveld, Chairman, Index Initiative and Founder Access to Medicines Index said; “Ranking companies on their actual behaviour doesn’t only drive the top of the list to set new boundaries, it also stimulates the companies in the lower regions to adapt their strategy and behaviour.”

The Governments providing support to the WBA consultation also commented:

Ulla Tørnæs, Minister for Development Cooperation, Ministry of Foreign Affairs of Denmark said; ‘We need more businesses of all sizes and investors to embrace the UN Sustainable Development Goals. Benchmarks can translate the SDGs into a business and innovation agenda, creating clarity on the unique role and abilities of companies to contribute to sustainable development in developing countries. Clarity on the role of business will equally demonstrate where we as governments must step up’

Lilianne Ploumen, Minister for Foreign Trade and Development Cooperation, The Netherlands said;  “Civil society, investors and governments need to collectively voice what we expect from industry. And then work together with industry to unlock the full potential of the private sector. Initiatives like the World Benchmarking Alliance enable us to embrace a more productive and sustainable approach that benefits all of us.”

ends

Media enquiries:

Aviva:

Heleana Greeves    +44 (0)20 7662 0405

Andrew Reid    +44 (0)20 7662 3131

Index Initiative:

Gonnie Been  g.been@indexinitiative.org   +31 651203963

UN Foundation:

Caleb Tiller   ctiller@unfoundation.org.   +1 202 887 9040

 

Notes to editors:

About the global World Benchmarking Alliance consultation:

Over the next 9 months, global and regional consultative roundtables and outreach events will be held, in addition to an online consultation accessible to all.  The consultation will scope a set of priority corporate performance focussed SDG benchmarks with global stakeholders. There will also be consultation on the institutional and organisational design of the proposed World Benchmarking Alliance.  Organisations that support the concept and ambitions of the World Benchmarking Alliance are invited to become allies to the consultation and actively participate. Allies to date include the EAT Foundation, The Global Foundation, the Inter American Development Bank, Nordea and The United National Global Compact. Allies to the consultation continue to grow and more can be found at: www.worldbenchmarkingalliance.org

About the founding partners:

BSDC The Business Commission aims to make a powerful business case for achieving a sustainable and inclusive economy. The flagship report ‘Better Business, Better World” launched in January 2017, maps the economic prize for companies that align with the Global Goals and shows how to achieve them. The Business Commission is chaired by Lord Mark Malloch-Brown; Mark Wilson serves as a Commissioner.  Learn more at www.businesscommission.org

Index Initiative Index Initiative is a centre of expertise in benchmarking corporate performance against stakeholder expectations. It seeks to propel the use of benchmarks to engage and bring purpose and clarity on the role of companies in contributing to the SDGs closest to their core business. A non-profit based in Amsterdam, The Netherlands, Index Initiative’s research and benchmarks are free and accessible to all.  Index Initiative will conduct the global consultation on the World Benchmarking Alliance   www.indexinitiative.org

United Nations Foundation The United Nations Foundation builds public-private partnerships to address the world’s most pressing problems, and broadens support for the United Nations through advocacy and public outreach. Through innovative campaigns and initiatives, the Foundation connects people, ideas, and resources to help the UN solve global problems. The Foundation was created in 1998 as a U.S. public charity by entrepreneur and philanthropist Ted Turner and now is supported by philanthropic, corporate, government, and individual donors. Learn more at: www.unfoundation.org.

Aviva

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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.