The early appearance of Hurricane Alex, which hit Mexico and the Gulf coast of the U.S., was, according to experts at Swiss Re, “a relatively unusual occurrence in June and could signal a very active hurricane season.”
Insured losses, caused by natural catastrophes, are increasing. In the first six months of 2010 they were double the average figure at $22 billion [See IJ web site – https://www.insurancejournal.com/news/international/2010/07/08/111387.htm].
Swiss Re explained two concepts designed to “manage their financial impact in a more pro-active way. These are Pool Solutions and Parametric Covers,” which it described as follows:
Pool solutions have proven their worth in numerous disasters. Insurance pools usually cover residential risks against earthquakes and floods. Cover for storm damage is already widespread and provided for through normal fire policies. So there is no need for additional action here.
Swiss Re believes natural disasters are insurable risks in the private market throughout most countries in the world – provided the free market is allowed to work.
Free markets will create a more diversified insurance and reinsurance market that will spread risk widely, increasing capacity and price competition. Additionally, capital market instruments like cat bonds can provide capacity in excess of private insurance market capabilities, if necessary.
The government purchases parametric cover, say for €1 billion [$1.258 billion], from the insurance and/or capital markets. The amount is paid out immediately after a triggering event and can be used by the government to provide immediate relief to the affected population and/or to rebuild infrastructure.
Swiss Re is not only one of the biggest players in reinsuring natural catastrophes but also the global leader in the provision of parametric covers and the securitization of insurance risk.
For more on how these solutions work, go to the reinsurer’s web site at www.swissre.com under the “ins and outs of pools and parametrics.”
Source: Swiss Re
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