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CCRIF now capable of covering 10,000-year storm events - Adds rainfall coverage to policy offerings

Published:Wednesday | November 28, 2012 | 12:00 AM
The Colonel Cove property in Morant Bay, St Thomas, is damaged by Hurricane Sandy, which hit Jamaica on October 24, 2012. The storm damage was not sufficient to trigger an insurance payout from CCRIF. - Ricardo Makyn/Staff Photographer

Sabrina Gordon, Business Reporter

The Caribbean Catastrophe Risk Insurance Facility (CCRIF) has capital well in excess of its retained risk of US$25 million to cover payouts on more extreme disasters, including those classified as 1 in 10,000-year events.

The World Bank in a newly released results report on CCRIF said the facility previously had reserves allowing it to respond to events that may occur only once in every 1,401 years without needing to draw on more than US$25 million of its assets.

CCRIF is now in its sixth year of operation. It insures 16 Caribbean countries against hurricanes and earthquakes and, more recently, extreme rainfall.

The World Bank cautioned, however, that for CCRIF to survive a payout on a 10,000-year event, should one occur, it would immediately require recapitalisation.

CCRIF's unaudited financial statements, for the year ending May 31, 2012, showed retained earnings of US$94.6 million and total assets of US$118.4 million, up from retained earnings of US$89.8 million and total assets in excess of US$114 million for the year 2011.

For the policy year ending May 31, 2012 all members renewed their policies. The facility wrote 16 hurricane and 13 earthquake policies with a total coverage limit of US$624.4 million.

During that period, it obtained reinsurance to cover US$125 million of the risk, with the balance being taken up initially by the World Bank's Treasury and then later transfered to reinsurers on the capital market.

For the 2012-13 year, CCRIF has issued coverage totalling US$626.2 million to all 16 members.

CCRIF was established in June 2007 as the first-ever regional insurance fund to limit the financial impact of catastrophic hurricanes and earthquakes on Caribbean budgets.

Seeking new members

It was developed through funding from the Japanese government, and was capitalised through contributions to a multi-donor Trust Fund by the World Bank, the Government of Canada, the European Union, the governments of the United Kingdom and France, the Caribbean Development Bank and the governments of Ireland and Bermuda, as well as through membership fees paid by participating governments.

Over the years, it has maintained its 16-country membership of which Jamaica is one, but is also looking to recruit additional country participants.

Additionally, it is also working to expand its product line and has added insurance against excess rainfall to its portfolio of offerings to Caribbean governments during the current policy year.

The excess-rainfall policy covers extreme rainfall events. Hurricane policies only cover wind and storm surges.

CCRIF members also benefited from a premium rebate equal to 25 per cent of the premium paid in the 2011-12 policy year, which was designated as a quiet period in which none of the policies held by member countries were triggered and no claims were paid.

This type of rebate is expected to continue in ensuing years under similar conditions.

Since 2007, CCRIF has made eight payouts - three for earthquakes and five for hurricane damage - to seven member countries totalling US$32.2 million.

In its report, the World Bank rated the workings and results of CCRIF as highly satisfactory on all scales dealing with relevance, design and implementation, achievement of objectives and outcomes as well as efficiency.

"Financial risk transfer through catastrophe insurance remains highly relevant to the development needs of the Caribbean Islands. The development objective of the trust fund and project was fully achieved; 16 Caribbean countries and territories paid participation fees and purchased 29 policies, which they have renewed and increased annually, thereby reducing their financial vulnerability to natural disasters," the report said.

"CCRIF has made payouts totalling US$32.2 million to members affected by covered earthquakes and hurricanes within two weeks or less of the event, thereby helping them to improve the quality of their disaster response.

"CCRIF itself is operationally efficient. It has limited its expenditures for operating the facility to around five per cent of gross premium income, thus opening the opportunity to reduce its pricing and also to expand its financial capacity for research and development activities and technical assistance," it said.

CCRIF is currently in the process of recruiting a chief executive officer. The facility is currently overseen by executive chairman Milo Pearson.