Jamaica, five others widen insurance coverage

Published: Wednesday July 9, 2008

Six Caribbean countries have opted for wider insurance coverage under the Caribbean Catastrophe Risk Insurance Facility (CCRIF) that will trigger payouts for moderate as well as major storms.

The six policyholders can now successfully claim for damage sustained under a 15-year storm, or in the jargon of the policy, a 1-in-15 year attachment point.

The lower policy trigger will allow these countries to claim for damage from hurricanes like Dean, a category three storm that hit the island last August, recording damage of US$350 million (J$24 billion).

Jamaica had to borrow from the World Bank to finance its recovery, as the storm was said not to have met the 20-year event criteria needed to trigger payment.

The insurance policies were renewed June 1. The premiums were also reduced by 10 per cent this year, a decision made after the region successfully lobbied for better terms under the World Bank-backed insurance facility.

Under the renewed policy, members to the CCRIF also had the option of choosing a level of coverage up to an aggregate limit of US$100 million per peril, moving from US$50 million in the previous year.

Coverage

Jamaica now has coverage of US$95.9 million for both hurricane and earthquake, having paid a premium of US$3.98 million, down from US$4 million in 2007.

All 16 policyholders were eligible for the extended coverage, but only Jamaica, Antigua, Dominica, Haiti, St Kitts & Nevis, and Turks and Caicos Islands took up the offer.

"Other countries may feel that they have enough resources, or their coverage may depend on what they feel their risks are," said a CCRIF spokeswoman.

For example, Trinidad &Tobago has a 1 in 50 attachment point because that country believes it is more prone to earthquakes than hurricanes, she said.

Three countries, Trinidad, St Kitts and Nevis and Grenada, opted to increase coverage.

Increased premiums

Trinidad, for example, increased its coverage to US$125 million, adding US$12 million onto its hurricane coverage and US$42 million more for earthquakes.

Its premium was US$4.5 million.

St Kitts & Nevis increased coverage by US$2.2 million to US$6.8 million for both hurricane and earthquake, having paid US$350,000 in premiums, while Grenada's coverage went up by US$5.7 million having paid a premium of US$1.3 million at the policy anniversary.

CCRIF's risk financing now stands at US$145 million, of which reinsurance valued at US$132.5 million was tapped from both the international reinsurance and capital markets to cover the policies renewed.

Bermuda donated US$500,000 to the pool.

According to a statement released by CCRIF, the contribution represents a signal by the Bermudan government of their commitment to proactive disaster mitigation.

Bermuda also paid premiums of US$500,000 for its coverage.

The total reserves held by CCRIF was not disclosed but its managers said there was enough to cover a loss which has less than a one in 10,000 chance of occurring.

The programme's reinsurers now includes Swiss Re, and the underwriters of Munich Re, Paris Re, and Hiscox of Lloyds.

Risk-financing layers

The facility's risk financing this year consists of three layers: a top layer of US$90 million financed with reinsurance of US$60 million plus US$30 million through a catastrophe swap between the World Bank, and its associated Inter-national Bank for Reconstruction and Development and CCRIF; reinsurers underwrite the second and third layer of US$12.5 million and US$30 million, respectively; while CCRIF retains the remaining US$12.5 million.

According to the CCRIF release, its claims paying capacity is maintained through its risk transfer programme, access to donor funds and its existing capital.

Since the inception of the fund, it has made payouts of approximately US$1 million to Dominica and St Lucia in the aftermath of a 7.4 magnitude earthquake that shook the islands on November 29.

CCRIF says it is working with regional groups and international reinsurance partners to develop solutions in the area of rainfall and agricultural losses, given the needs identified during the 2007 policy period.

The facility which was developed to limit the financial impact of catastrophic hurricanes and earthquakes on Caribbean budgets through liquidity support, has maintained its 16 country membership, but is looking to recruit additional country participants.


Source:
Sabrina Gordon
Jamaica Gleaner
http://www.jamaica-gleaner.com/gleaner/20080709/business/business6.html
sabrina.gordon@gleanerjm.com