NJFuture Redevelopment Forum 2016 Kaplan

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Resilience and the Economics of RiskNew Jersey FutureMarch 2016

Swiss Re Global Partnerships | Alex Kaplan | March 2016 2

The growing burden of uninsured lossesNatural catastrophe losses 1970 – 2014 (in 2014 USD)

1970

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2013

2014

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

Insured losses Uninsured losses

Source: Swiss Re Economic Research & Consulting and Cat Perils.


Growing Exposures: Climate change is not the main driver for rising natural catastrophe losses in recent decades

Source: Skyscapercity.comShanghai: 1990 to 2013


1970

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050

100150200250300

Total Disasters

FEMA Disaster Declarations – 1970-2014Disasters Have Tripled Since in the 1970s


The proportion of economic losses absorbed by the USG:Is this sustainable?


• Since 2005, the US taxpayer has spent over $300 billion on direct costs of extreme weather and fire alone.

• Firefighting expenses have tripled in 20 years.• In 1991, firefighting made up 13% of the Forest Service budget. In

2013, it was 50%• Natural catastrophes (earthquake and weather related) cause

average economic losses of $60-100 billion annually. (Hurricane Sandy = ~$70 billion)

• The US Government spent $96b in 2012 to pay for climate-related events– If this so-called "Climate Disruption Budget" were included in the actual

budget, it would be the largest non-defense discretionary budget item. – The Government paid more for climate-related losses than it did for

transportation or education.

In the US, the price tag is large and growing.


Growing consensus on the macroeconomic impact of natural events

“Insurance confers benefits both before and after disaster strikes. Beforehand, the underwriters [demand] better planning and higher-quality, more resilient building from property developers and city planners. Afterwards, insurance helps entire economies to recover more rapidly.”The Economist, 13 June 2015

"Major natural catastrophes have large and significant negative effects on economic activity... However, it is mainly the uninsured losses that drive the subsequent macroeconomic cost, whereas sufficiently insured events are inconsequential in terms of foregone output."Working Paper No. 394, December 2012

"Natural disasters can damage sovereign creditworthiness”Storm Alert: Natural Disasters Can Damage Sovereign Creditworthiness, September 2015

"Climate change is likely to be one of the global mega-trends impacting sovereign creditworthiness…. Government budgets could come under additional pressure as disaster recovery and emergency support for affected populations is likely to fall on the state in most cases."Climate Change is a Global Mega Trend for Sovereign Risk, May 2014

http://www.bis.org/index.htm


VietnamAgriculture yield

cover

Pacific Islands Earthquake and tropical cyclone

risk

UruguayEnergy

production shortfalls

due to drought

IndiaWeather insurance

for farmers

CaribbeanHurricane,

earthquake and excess rainfall risk

BeijingAgricultural risk

TurkeyEarthquake pool

Alabama Hurricane risk

MexicoEarthquake/hurricane

and livestock risk

Bangladesh Meso flood insurance

African Risk Capacity

Government drought insurance

pool (Mauritania,

Senegal, Kenya, Niger Mozambique)

First dedicated public sector team in the reinsurance industry

Over 100 closed solutions since 2006

Manage insurance, reinsurance and capital markets andall perils (disasters, weather, pandemics, longevity, etc.)

Global footprint Pioneer in

emerging and industrialized markets

Swiss Re Global Partnerships enables Swiss Re toaddress the protection gap

FloridaHurricane risk


Economics of Climate Adaptation

Swiss Re Global Partnerships | October 2015 9


Climate adaptation is an urgent priority

Decision makers ask

What is the potential climate-related damage over the coming decades?

How much of that damage can we avert, with what measures?

What investments will be required to fund those measures and will the benefits of that investment outweigh the costs?


Sea level rise and altered hurricane frequencies significantly increase losses in New York City

Source: www.nyc.gov: A Stronger More Resilient New York

Expected annual losses from storm surge and wind (billion USD)

+ 88%

+ 70% + 168%

http://www.nyc.gov/


• Current drivers of loss: east and south shores of Staten Island, southern Brooklyn and Queens, Brooklyn and Queens waterfront and southern Manhattan.

• Under future scenarios: Same geographic regions, plus northern Queens and the Bronx

• Under 2050s scenario: 400% increase in ZIP codes which have an AEL of USD 30 million

ResultsAnnual Expected Loss by ZIP code

Source: A Stronger, More Resilient New York

13Swiss Re Global Partnerships | Alex Kaplan | March 2016

Closing the gap

13

Swiss Re Global Partnerships | Alex Kaplan | March 2016

How to close the protection gap

14

gap

14

Which risk?

Governments

Who carries the

risk?

PoolingInsurance schemes and pools

to increase insurance penetration

MacroRisk transfer solutions

for (sub)sovereigns to cover their direct or indirect costs

MicroSimplified products distributed

via aggregators such as MFIs, NGOs, and corporates

Risk transfer solution

Businesses, homeowners

, farmers

Public physical assets

Emergency response costs

Foregone revenue

Uninsured private assets

Livelihood assistance

Prot

ectio

n ga

p

Individuals


Disaster Risk Financing:Case Studies


Case study Caribbean:Caribbean Catastrophe Risk Insurance Facility (CCRIF)

Solution features The CCRIF offers parametric hurricane and earthquake

insurance policies to 16 CARICOM governments The policies provide immediate liquidity to participating

governments when affected by events with a probability of 1 in 15 years or over

Member governments choose how much coverage they need up to an aggregate limit of USD 100 m

The mechanism will be triggered by the intensity of the event (modelled loss triggers)

The facility responded to events and made payments:

Involved parties Reinsurers: Swiss Re and other overseas reinsurers Reinsurance program placed by Guy Carpenter Derivative placed by World Bank Treasury

Payouts to date 2010: Haiti USD7.7m (earthquake), Barbados USD 8.5m

(hurricane), St. Lucia USD 3.2m (hurricane), St. Vincent & The Grenadines USD 1.1 (hurricane), Anguilla USD 4.2m (hurricane).

2008: Turks & Caicos USD 6.3m (hurricane) 2007: St. Lucia USD 418k (hurricane), Dominica USD 528k

(hurricane).


Case study Mexico: MultiCat - Funding for immediate relief efforts after disasters

Solution features Insured perils: Earthquake and hurricane Payments to be used for immediate emergency relief after

a disaster Parametric catastrophe bond: USD 315 m Trigger type: Index

Earthquake: physical trigger (quake magnitude) Hurricane: physical trigger (barometric pressure)

Time horizon: October 2012 – November 2015 Renewed cat bond launched through the World Bank’s

MultiCat facility and third cat bond for Mexico

Involved parties Insured: Fund for Natural Disasters (FONDEN) of Mexico Reinsured: AGROASEMEX S.A. Arranger: World Bank Treasury Swiss Re: Co-lead manager and joint bookrunner

Swiss Re Global Partnerships | Alex Kaplan | March 201618

Case study United States:Alabama – First parametric cover for a government in an industrialized country

Solution features• Insured peril: Hurricane• Payments to offset economic costs of hurricanes• Trigger type: Disaster occurring within a defined

geographic area ("box") along coast (“cat-in-the-box”)• Trigger based on wind speed of hurricane eye as it

passes through pre-determined box• Payout in as little as two weeks• Time horizon: July 2010 – July 2013• First parametric catastrophe risk transfer for a

government in an industrialized country

Involved parties• Insured: State Insurance Fund of Alabama• Swiss Re: Lead structurer and sole underwriter

18


Case study:Broward County, FL– Custom multi-year structured cover

Solution features Insured peril: Named Windstorm and associated flood Multi-year structured cover: USD 100m Covering indemnified losses from NWS to soften impact

to the County– 3 year coverage with unlimited reinstatements– Term Aggregate Deductible– Fixed premium over term– No claims bonus

Time horizon: February 2015– February 2018 Customized multi-year structured risk transfer for major

school district

Involved parties Insured: Broward County Swiss Re: Lead structurer and sole underwriter Broker: AJ Gallagher


Contact Information – The Americas

Alex KaplanSenior Client Manager

Global Partnerships

Swiss Re Management (US) Corp.101 Constitution Ave. NW, Suite

700Washington, DC 20001

USA

Tel +1 (202) 742-4623Fax +1 (202)742-4630

[email protected]

@alexskaplan

mailto:[email protected]

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NJFuture Redevelopment Forum 2016 Kaplan