Grand Cayman, Cayman Islands, September 19, 2017. CCRIF SPC (formerly the Caribbean Catastrophe Risk Insurance Facility) announced today that since its inception in 2007, it has made payouts of a little more than US$100 million to 12 of its 17 member countries – all within 14 days of the event. The US$100 million mark was reached following payouts under the excess rainfall policy of three countries – Anguilla, Turks & Caicos Islands and The Bahamas – as a result of rainfall from Hurricane Irma. Two of these three countries – Anguilla and the Turks & Caicos Islands – also received payouts under their tropical cyclone policies due to the impacts of Irma.

The 2017 Atlantic Hurricane Season still has two months to go and the facility has already made payouts totaling US$31.2 million to six countries under their tropical cyclone (TC) and excess rainfall (XSR) policies and under a new feature for tropical cyclone policies known as the Aggregate Deductible Cover (ADC), following the passage of Hurricane Irma – as shown below:

According to CCRIF CEO, Mr. Isaac Anthony, “The injection of short-term liquidity that CCRIF provides when a policy is triggered is not intended to cover all the losses on the ground following a disaster, but is designed to allow governments to reduce their budget volatility and to provide much needed capital for emergency relief such as clearing of debris and other clean- up activities, restoring critical infrastructure, and most importantly providing humanitarian assistance to the affected population, thereby reducing post-disaster resource deficits”.

For many countries, when a disaster strikes, governments, and especially those of developing countries such as those in the Caribbean and Central America, must divert from their budgets to finance post-disaster expenses, and often must also rely on new loans (even if those are at concessionary rates) and donations from the regional and international community which oftentimes come weeks or months after the event.

A case in point is Haiti. After the 2010 earthquake in Haiti, their earthquake insurance payout from CCRIF (approximately US$7.8 million, 20 times more than the insurance premium) was the first set of funds received and arrived long before pledged international financial assistance. CCRIF’s payout – made 14 days after the event – constituted around 50 per cent of the total aid the Government received in the first 10 weeks in the form of direct liquidity. The importance of the rapidity of the CCRIF payout is clear, particularly given that, according to reports, more than six months after the earthquake, less than 10 per cent of the US$5 billion in donor pledges had been received.

Recall that CCRIF was established following Hurricane Ivan in 2004 and the level of devastation wrought throughout the Caribbean. Following the passage of Ivan, the Caribbean Community (CARICOM) Heads of Government held an emergency meeting to discuss critical issues surrounding the need for the provision of disaster risk financing for its members. Consequently, CARICOM resolved to take action and approached the World Bank for assistance to design and implement a cost-effective risk transfer programme for member governments. This marked the beginning of what would become CCRIF. The facility was therefore designed to help countries add to their revenues in the short term by providing an infusion of cash to help them fund the initial phase of their disaster response and avoid interruption of their basic business of government.

Each member pays an annual premium directly related to the amount of risk it transfers to CCRIF and can purchase coverage up to a limit of approximately US$100 million for each insured hazard (tropical cyclones, earthquakes and excess rainfall events). According to Mr. Anthony, “by pooling the catastrophe risks of our members into a single diversified portfolio, we are able to save our members approximately 50 per cent in individual premium payments compared to if they were to purchase identical coverage individually.”

In reflecting on the total payouts of US$100 million, CCRIF Chairman, Mr. Milo Pearson says that “the role of the international donor community cannot be overemphasized” and further stresses that donors have been instrumental to the success of CCRIF – providing support for capitalization for the facility as well as major operating expenditures such as those related to model and new product development. “Our development partners have supported the buildout of the facility’s risk bearing capacity assuring its financial sustainability as an independent entity over the long term and above established national benchmarks for catastrophe insurers”, he states.

Mr. Anthony, in looking back at Irma and other storms impacting the region as well as the need for immediate liquidity, says “member countries must focus in the coming years on scaling up insurance coverage where ‘adequate’ coverage levels should not fall below 25 per cent of the overall government exposure to earthquake, hurricane and excess rainfall risk on an ongoing basis (i.e. relative to the annual average loss) and particularly for larger shock events”. Currently for many CCRIF member countries, the level of coverage is directly related to the amount of premium they can afford and an increase in coverage is constrained by limited public finances due to the downturn in the performance of economies, increases in fiscal deficits and high levels of debt. CCRIF continues to find innovative ways to minimize premium costs wherever possible – by decreasing premiums, offering premium rebates and allowing access to premium financing from countries’ participation fees.

CCRIF is the world’s first multi-country risk pool based on parametric insurance and has been providing parametric catastrophe insurance for Caribbean governments since 2007 (and Central American governments since 2015) – offering hurricane, earthquake and – since 2013 – excess rainfall coverage. Currently, at the requests of governments in the region, the facility is in the process of bringing to market three new parametric insurance products in 2018 – for drought, agriculture and fisheries. As an innovative facility, we have also begun investigations to determine the feasibility of introducing parametric insurance in other sectors that are adversely impacted by disasters and where insurance is not always easily accessible on a timely basis.

Globally, CCRIF continues to be cited as an internationally recognized example of a risk transfer mechanism and member governments are viewed as leading the way in pre-disaster planning. Purchasing CCRIF’s insurance products is one area in which governments can advance debt sustainability by reducing public debt and sources of macroeconomic instability by obtaining financing for rehabilitation immediately after a disaster. The CCRIF model has since been adopted in two other regions, Africa and the Pacific.

Notwithstanding CCRIF’s vital role, the facility urges its members not to view the organization as a silver bullet for managing disaster risk but rather a complementary tool in addressing the much broader issues of disaster management and climate change adaptation within the state.

About CCRIF SPC: CCRIF SPC is a segregated portfolio company, owned, operated and registered in the Caribbean. It limits the financial impact of catastrophic hurricanes, earthquakes and excess rainfall events to Caribbean and – since 2015 – Central American governments by quickly providing short-term liquidity when a parametric insurance policy is triggered. It is the world’s first regional fund utilising parametric insurance, giving member governments the unique opportunity to purchase earthquake, hurricane and excess rainfall catastrophe coverage with lowest-possible pricing. CCRIF was developed under the technical leadership of the World Bank and with a grant from the Government of Japan. It was capitalized through contributions to a Multi-Donor Trust Fund (MDTF) by the Government of Canada, the European Union, the World Bank, the governments of the UK and France, the Caribbean Development Bank and the governments of Ireland and Bermuda, as well as through membership fees paid by participating governments. In 2014, an MDTF was established by the World Bank to support the development of CCRIF SPC’s new products for current and potential members, and facilitate the entry for Central American countries and additional Caribbean countries. The MDTF currently channels funds from various donors, including: Canada, through the Department of Foreign Affairs, Trade and Development; the United States, through the Department of the Treasury; the European Union, through the European Commission, and Germany, through the Federal Ministry for Economic Cooperation and Development. CCRIF is celebrating its 10th anniversary this year – 2017.