Risk Financing Strategy

Transcription

1 isk Financing trategy Overview ofconcepts Olga Jonas - Joaquin oro Bangkok - February 26 before V after FCL Preparedness itigation wareness esponse elief econstruction DUCO FC Comprehensive isk anagement Framework O U O B U L D C Y P P D F C ey Questions for Policy akers What is country s risk exposure? atural hazards an-made hazards Can risk exposure be reduced through mitigation (reduce vulnerability)? What is the ex-post funding gap? hould gov t retain this residual risk or should it transfer part of it to international reinsurance/capital markets? 1

2 What is country s risk exposure? Can vulnerability be reduced? etrofitting critical public assets Preparedness Hazard mapping and land-use planning Building codes eed incentives, institutions very high social returns x-post financing needs Wide discrepancy between economic and insured losses most of the risk is carried by governments and homeowners Lack of liquidity in the aftermath of disasters may severely retard economic recovery ecurrent disasters impair and constrain public finances (excessive borrowing) imeliness and Phasing of Financing mount $m x-post funding gap for government's budgetary outlays Funding gap ime (quarters) Post-disaster funding ypes of Financing to ddress ap isk retention (reserves) isk transfer nsurance (e.g., pilot parametric small states pool) Catastrophe bonds nter-temporal risk spreading Contingent debt Probabilityof Occurrence Capacity 5-2 years 2-3 years 2-3 years FC Cat Bonds esource ap eservefunds ypeof isk Parametric Coverage Catastrophic isks Contingent Facility ecurrentisks llhazards 2

3 Probabilistic Catastrophic isk odeling HZD ODUL XPOU ODUL VULBLY D ODUL COLOB Disaster Vulnerability eduction PL PL1 ational Level PL2 unicipal Level epeater PL3 unicipal Level LO ODUL COLOB DVP mergency ssistance nstrument: COLOB DVP Disasters eported per Year in Colombia, c cording to Database of Desinventar umber of Disasters eported Ls still take time to prepare, disbursement 16 months after the earthquake struck rmenia. PL floating phase requires preparation of an appraisal document, due diligence at the Bank and the signature of the Vice President. he DDO is intended to give middle-income borrowers access to long-term BD resources if market borrowing becomes difficult and a financing need materializes. he DDO, however, functions as a Development Policy Loan with all conditions satisfied prior to loan signing, and could not, in this case, be used to finance eligible expenditures needed for investments otal overnment trata 1 2 COLOB DVP L 1 L 5 L 1 6, , ,99.1 1,47.1 2,51.6 2, L overnment s post disaster commitment 1. Lifeline infrastructure replacement 2. Provision of safety nets 3. High return and sustainable mitigation investment 4.Other infrastructure x post sources of funds COLOB DVP pecific cenario 3 weeks 6 months 1 year id otal as % of DP vt. as % of ational tr. 1&2 as % of at. 6.46% 11.3% 2.5% 11.25% 18.75% 5.51% 13.37% 22.13% 7.6%.37% 1.3%.14% Central funds transfer reallocation ax surcharge Domestic credit Development Banks imulations Other external Credit x post funding gap 3

4 COLOB DVP COLOB FC Cumulative monetary values x post funding gap overnment budgetary outlays x postfunds available One week One month ix months ime after the catastrophic event Optimizing coverage of Public ssets Promoting insurance of Private ssets Designing an optimal financial strategy for residual risks eserves Contingent loan dditional (Parametric) coverage CBB COPH UC V (CC) tormy Weather Particularities of CCO tates High exposure to a variety of adverse natural events Limited resilience to disasters because of small size and limited borrowing capacity Dependence on donor support for postdisaster needs Limited access to insurance Catastrophe isk nsurance Facility Payouts triggered by parametric index (e.g., hurricane category, wind speed, etc.) nsurance premium related to individual risk exposure (avoid cross subsidization) Long term financial sustainability nnual premium paid by participating countries mall losses covered by a reserve pool (risk capital provided by donor countries) einsurance of excessive losses on the international market 4

5 educing Premium Cost Pure vs. Commercial Premiums Commercial Premium = xpected Loss (Pure Premium) eserve (Cost of capital) dministrative Cost eturn on quity U$ million 18 Pure premium Commercial premium Bahamas Jamaica ntigua&barbuda Dominica t Lucia Barbados t itts and evis ranada rinidad t Vincent For illustrative purpose only Conclusions isk anagement should be an integral part of development planning Comprehensive long-term approach esidual risk includes indirect losses ime dimension of financing needs eed for Public/Private partnerships Premium = L + eserve & Cat Load + dmin Cost + O 5