KINGSTON, Jamaica: The world’s first ever regional insurance resource, the Caribbean Catastrophe Risk Insurance Facility (CCRIF) was launched June 1. The CCRIF provides participating Caribbean governments with immediate access to liquidity if hit by a hurricane or earthquake.

“The birth of the CCRIF marks a paradigm shift in the way the Caribbean, international donor agencies and the worldwide insurance market view risk,” said Matthew Pragnell, CEO, CGM Group. “This parametric solution has been designed to automatically respond based on the predefined hazard and actuarial models developed for the region. This means that the participating nations will immediately qualify to receive a standard cash injection based on the severity of the catastrophe.” The CCRIF is operated by Caribbean Risk Managers Ltd. (CaribRM), a division of the CGM Group, with support from Sagicor Insurance Managers Ltd.

The launch of the facility is a significant achievement for a region comprised of many sovereign nations that would need capital support and risk capacity on the heels of some of the costliest hurricane seasons on record. In fact, it was just after the 2004 season in which Hurricane Ivan caused damage in Grenada and the Cayman Islands estimated at almost twice the respective annual GDP, that the heads of Caribbean governments approached the World Bank for assistance.

“Thanks to the support of the international financial markets and all parties involved, insurance coverage can be confirmed to participating countries on June 1,” said Caroline Anstey, World Bank Country Director for the Caribbean. “This new Facility is being launched just in time for the beginning of the 2007 hurricane season, which according to the experts, may be particularly severe.”

CCRIF was able to secure US$110 million of claims paying capacity on the international reinsurance and capital markets. The reinsurance structure consists of four layers: CCRIF retains the first layer of US$10 million; reinsurers underwrite the second (US$15 million) and third layers (US$25 million); the top layer (US$70 million) is financed with reinsurance (US$50 million) plus US$20 million coverage through a catastrophe swap between the World Bank (IBRD) and CCRIF. IBRD hedged its risk through a companion swap with Munich Re Capital Markets. The US$20 million swap between IBRD and CCRIF is the first transaction to enable emerging countries to use a derivative transaction to access the capital market to insure against natural disasters. It is also the first time a diversified pool of emerging market countries’ catastrophe risk is placed in the capital markets. CaribRM played a pivotal role in developing and executing the swap transaction.

The CCRIF’s capacity to service claims is based on its own reserves combined with the financial capacity of the international financial markets. This will allow CCRIF to respond to events occurring once every 1,000 years or more, achieving a higher level of resiliency than international standards.

Caribbean countries are highly vulnerable to natural disasters - on average, one major hurricane affects a country in the region every two years - and have only limited options available to respond. Work is also being considered to expand the scope of the coverage provided by CCRIF to other natural hazards such as floods and tsunamis.

CCRIF participating governments are: Anguilla, Antigua & Barbuda, Bahamas, Barbados, Belize, Bermuda, Cayman Islands, Dominica, Grenada, Haiti, Jamaica, St Kitts & Nevis, St Lucia, St Vincent & the Grenadines, Trinidad & Tobago, Turks and Caicos Islands.