SUMMARY

Drawing on material from a recent World Bank conference, Eugene N. Gurenko assembles some of the foremost reinsurance and risk management experts from industry and academia. The chapters thoroughly explore subjects such as country risk assessment, risk modelling, risk transfer methods and national reinsurance.

• Outlines the key challenges involved in building national catastrophe insurance schemes and suggests how disaster-prone countries can manage their exposures to reduce the cost of risk by following the classical corporate risk management model

• Demonstrates the importance of public-private partnerships in catastrophe risk financing by suggesting the roles of government and private risk markets

• In addition to risk financing, this title uniquely covers the role of risk reduction and prevention in disaster prone countries

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  TABLE OF CONTENTS

CONTENTS
Foreword
Cesare Callari

Introduction
Eugene N. Gurenko

Section 1: The institutional perspective on national catastrophe risk management

1 ″Building Effective Catastrophe Insurance Programmes at the Country Level: A Risk Management Perspective″
Eugene N. Gurenko

2 ″Catastrophe Risk Retention and Catastrophe Pools″
Rodney Lester

Section 2: Catastrophe risk measurement

3 ″Catastrophe Risk Models for Asia from a User Perspective″
George Walker

4 ″The Application of Probabilistic Earthquake Risk Models in Managing Earthquake Insurance Risks in Turkey″
Dennis Kuzak, Ken Campbell and Mahmoud Khater

5 ″Quantifying the Catastrophe Exposures from Cyclones, Earthquakes and Floods in 4 Indian States″
Adityam Krovvidi

Section 3: Risk reduction vs. risk Transfer: which strategy works best?

6 ″The National Flood Insurance Programme: A Model for Risk Management″
Anthony S. Lowe

7 ″Flood Risk - Optimising a National Insurance Programme″
Charles Scawthorn

8 ″Integrating Mitigation with Risk Transfer Instruments″
Howard Kunreuther, George Deodatis, and Andrew Smyth

9 ″Development Enhancing Risk Management″
Caroline Clarke and Neil A. Doherty

10 ″New Approaches to Promote Disaster Risk Mitigation: Lessons learned in the Europe and Central Asia Region″
Christoph Pusch

Section 4: Public-private partnerships in catastrophe risk management

11 ″Retrocession vs. Alternative Markets in Managing a Reinsurer's Accumulations″
Andrew Castaldi

12 ″Florida Hurricane Catastrophe Fund: Lessons and Experience″
Jack E. Nicholson

13 ″Insuring the Uninsurable : The French Natural Catastrophe Insurance System″
Suzanne Vallet

14 ″A Reinsurer's Perspective on the Turkish Catastrophe Insurance Pool″
Johann-Adrian von Lucius

15 ″Government as Reinsurer of Last Resort: The Japanese Experience″
Yuichi Takeda

16 ″The Viability and Likely Pricing of ″Cat Bonds″ for Developing Countries″
Morton Lane

Section 5: Managing moral hazard and product distribution costs: key operational challenges

17 ″Evidence of Market Response to Coverage Value in Some Major Catastrophe Insurance Programmes″
John Seo

18 ″Self-Insurance Funds in Mexico″
Hector Ibarra

19 ″Providing Access to Catastrophic Insurance Coverage for the Poor: Key Factors for Success″
Douglas Lacey

NB - This table of contents is provisional until final publication of the book. Small changes to chapter titles and sequence may occur.

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  QUOTES

″This book displays current state-of-the-art thinking about addressing a most formidable risk management challenge: natural disasters at the national level. It is a timely addition to the literature on risk management. The diversity of opinions as well as the balance of viewpoints from academia, industry, and government, ensures that the approach taken is comprehensive.″
Lloyd Foster, Vice President, Risk Management and Pricing, Transamerica Reinsurance

″A comprehensive summary of the tools and prerequisites for natural catastrophe financing schemes, based on practical examples and top expert input from around the world.″
Edouard Schmid, Swiss Re

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  REVIEW

Reviewed by James Brewer, Lloyd's List, April 15 2004
WHEN India suffers, she suffers on a catastrophic scale.

Deaths of more than 20,000 people, and economic losses of more than $4bn, were the combined cost of the Orissa cyclone of October 1999 and the Gujarat earthquake of 2001.

The blame for this heavy toll lies with the lack of effective preparedness and near-absence of any risk-hedging mechanisms such as insurance.

Insurers are among those seeking to get to grips with how countries exposed to natural disasters can manage their exposures to reduce the heavy impact on national economies.

In India, for example, the damage potential of cyclones in Orissa is now considered far higher than in other states - and double that of Florida hurricanes. Gujarat earthquakes have 10 times more damage potential than Maharashtra, while less damaging than earthquakes of Japan or California.

All the same, Gujarat has the highest catastrophe risk in terms of a 150-year probable maximum loss.

Such were the conclusions of a World Bank pilot study that was part of a regional initiative on financial risk management of natural catastrophes. Adityam Krovvidi, who was involved in the research and catastrophe modelling, and now works for the private company Risk Management Solutions International, says that despite some uncertainties, the results were satisfactory in helping risk decision making.

Mr Krovvidi is among a group of expert authors assessing the value of insurance input in a number of countries, in a new book, Catastrophe Risk and Reinsurance: A Country Risk Management Perspective.*

The contributions are to a large degree, as one chapter heading refers, about ″insuring the uninsurable″.

Yuichi Takeda of Tokio Marine Management, for instance, details how the establishment of the Japanese Earthquake Insurance System showed how government leadership could help provide a successful public-private partnership.

In the Japanese scheme, it was the government that had to provide reinsurance capacity as a last resort. As in the private sector, reinsurance capacity is constrained by global supply and demand.

Another vulnerable country, Turkey - literally jolted into action when an earthquake hit a heavily populated region close to Istanbul in 1999 - formed a catastrophe insurance pool, with the assistance of the World Bank.

From a reinsurance point of view, says Johann-Adrian von Lucius of Munich Re, the Turkish pool is a viable project, but requires strong commitment and action by all involved. He calls for the Ankara government to make earthquake cover compulsory and enforce it through penalties for non-compliance.

In all, 11 national catastrophe insurance programmes are in operation, almost all in developed countries, which makes the book a key source of reference for those seeking to sharpen the responses of developing economies. Meanwhile the catastrophe bond market is becoming more attractive to potential country issuers - but pricing volatility remains an obstacle to the cost of risk transfer.

James Brewer, Lloyd's List, April 15 2004

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  AUTHOR BIOGRAPHY

Dr. Eugene N. Gurenko is a Senior Insurance Specialist at the World Bank Insurance Practice. During his career at the World Bank Group, which he joined in 1998, he designed and managed the World Bank program of technical assistance and lending to the Turkish Catastrophe Insurance Pool, currently one of the largest earthquake insurers in the world. For his work on the Turkish Catastrophe Insurance Pool, Mr. Gurenko received President's Excellence Award. Since then, Dr. Gurenko has been actively involved in developing catastrophe risk management solutions for the World Bank client countries. His latest assignments include the design and management of World Bank programs of technical assistance and lending in support of the catastrophe insurance programs in Turkey, Iran, Romania, India, Columbia and the Philippines. Dr. Gurenko holds a Ph.D. from Columbia University, a title of Chartered Property Casualty Underwriter (CPCU) and an associate degree in reinsurance (ARe).

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  CONTRIBUTORS

Cesare Callari, Rodney Lester, George Walker, Dennis Kuzak, Ken Campbell and Mahmoud Khater, Adityam Krovvidi, Anthony S. Lowe Charles Scawthorn, Howard Kunreuther, George Deodatis, and Andrew Smyth, Caroline Clarke and Neil A. Doherty, Christoph Pusch, Andrew Castaldi, Jack E. Nicholson, Suzanne Vallet, Johann-Adrian von Lucius, Yuichi Takeda, Morton Lane, John Seo, Hector Ibarra, Douglas Lacey
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