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Mr. Alejandro D Guerson

reprioritization. 30. The second insurance layer with CCRIF coverage is calibrated based on loss functions’ damages for tropical cyclones and earthquakes as reported by CCRIF . In each country’s simulation the attachment point and maximum coverage are set according to the estimated damages along the expected loss function for 20 and 100 year estimated damages, respectively. Maximum coverage under CCRIF is thus the difference between maximum coverage and attachment point. CCRIF payouts in each simulation are triggered according with the ND algorithm explained above. The

Mr. Alejandro D Guerson
This paper estimates insurance requirements against natural disasters (NDs) in the Eastern Caribbean Currency Union (ECCU) using an insurance layering framework. The layers include a government saving fund, as well as market instruments. Each layer is calibrated to cover estimated fiscal cost of NDs according to intensity and expected damage. The results indicate that ECCU countries could target saving fund stocks for relativelly smaller and more frequent events in the range of 6-12 percent of GDP, enough to cover 95 percent of NDs’ fiscal costs. To ensure financially-sustainable saving funds with a low probability of depletion, this requires annual budget savings in the range os 0.5 to 1.9 percent of GDP per year. Additional coverage could be obtained with market instruments for large and less frequent events, albeit at a significant cost.The results are based on a Monte-Carlo experiment that simulates natural disaster shocks and their impact on output and government finances.
International Monetary Fund. Western Hemisphere Dept.

for 20 and 100 year estimated damages, respectively. Maximum coverage under CCRIF is thus the difference between maximum coverage and attachment point. CCRIF payouts are triggered according with the ND algorithm explained above. The payout amount is determined as a proportion of simulated losses. In addition, in light of imperfect correlation between parametric triggers under CCRIF and actual damages, it is assumed that CCRIF payouts are discounted by a factor of 0.5 for 1/20 year losses based on insurance multipliers of near 1 for low coverage (that is, payouts

International Monetary Fund. Western Hemisphere Dept.
Dominica is among the countries most vulnerable to natural disasters and climate change. During 1997-2017, it was the country with highest GDP losses to climate-related natural disasters and ranked in the top 10 percent among 182 countries for climate-related fatalities. Following a huge devastation, owing to back-to-back major storms in 2015 and 2017, Dominica announced its intention to become the first disaster resilient nation. In 2019, it was agreed with the government that the Fund, in consultation and collaboration with other development partners, would provide support for preparing a Disaster Resilience Strategy (DRS), a comprehensive plan including policies, cost, and financing to build resilience against natural disasters.
International Monetary Fund. Western Hemisphere Dept.

Attachment Point (years) 10 50 5 Exhaustion Point (years) 100 175 25 Ceding Percentage 25% 33% 5% Gross Premium (US$) $885,263 $100,000 $531,690 27. CCRIF payouts have been critical to finance post-disaster need and rehabilitation cost, especially considering its fast disbursement, just two weeks after a disaster . Over US$23 million in payouts have been received thus far, the majority following hurricane Maria (text table). However significant, the payouts have been vastly below the post-disaster need, and not always

Aliona Cebotari and Karim Youssef
Natural disasters are a source of economic risks in many countries, especially in smaller and lower-income states, and ex-ante preparedness is needed to manage the risks. The paper discusses sovereign experience with disaster insurance as a key instrument to mitigate the risks; proposes ways to judge the adequacy of insurance; and considers ways to enhance its use by vulnerable countries. The paper especially aims to inform policy decisions on disaster insurance. Through simulations of natural disasters and various insurance options, we find that sovereign decisions on optimal risk transfer involve balancing trade-offs between growth and debt, based on government risk preferences and country risk exposure. The choice of optimal insurance for smaller countries turns out to be more constrained by cost considerations due to their higher exposure, likely resulting in underinsurance; donor grants could help them achieve a more optimal protection. We also find that optimal insurance packages are those that are least costly relative to expected payouts (i.e. have the lowest insurance multiple), which are also the packages that insure less severe (more frequent) disasters.
Aliona Cebotari and Karim Youssef

models, and reducing administrative costs. Quick payouts following disasters, which helps members maintain essential government functions. In the case of CCRIF, payouts are made in14 days or less and the provision of flexible and rapid budget support is a key value proposition compared to conventional insurance schemes; Policy holders are the owners of the facility (CCRIF, PCRAFI, ARC), which allows benefits to accrue to member states either through dividend payments or lower premia. This also helps avoid conflicts of interest between increased profits and serving

International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper presents a quantification of the long-term benefits of ex-ante resilient investment and insurance needs against natural disasters (ND) in Eastern Caribbean Currency Union (ECCU). Cost-benefit analysis of resilient investment based on a dynamic stochastic general equilibrium model tailored to small states and calibrated to all ECCU economies is also discussed in the paper. The model’s aggregate production function illustrates the interaction among the participating sectors and their contribution to output, ultimately informing the role of resilient investment. The study also quantifies government insurance coverage needs and costs using an empirical stochastic model that simulates NDs fiscal costs. The insurance needs are framed within the World Bank insurance layering framework. The results in this paper underscore the importance of a shift from ex-post recovery to a focus on ex-ante resilience building. Ex-ante resilient investment and insurance are key to the welfare and financial sustainability of the ECCU, given high intensity and recurrence of NDs.
Charles Cohen, S. M. Ali Abbas, Anthony Myrvin, Tom Best, Mr. Peter Breuer, Hui Miao, Ms. Alla Myrvoda, and Eriko Togo
The COVID-19 crisis may lead to a series of costly and inefficient sovereign debt restructurings. Any such restructurings will likely take place during a period of great economic uncertainty, which may lead to protracted negotiations between creditors and debtors over recovery values, and potentially even relapses into default post-restructuring. State-contingent debt instruments (SCDIs) could play an important role in improving the outcomes of these restructurings.