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The CCRIF SPC (formerly named the Caribbean Catastrophe Risk Insurance Facility) has expanded its parametric risk pool to include Panama, as the Central American country joins the provider of parametric sovereign disaster risk transfer products and signs up for excess rainfall protection.
The CCRIF is a multi-country risk pool, providing parametric disaster insurance at the sovereign level for perils including earthquakes, hurricanes and extreme rainfall events, and tapping the reinsurance and capital market for risk pool support.
The facility has been steadily growing and with Panama now signed up CCRIF has two Central American members and a risk pool that now includes exposures from 21 countries (19 from the Caribbean).
This expansion helps the CCRIF to acquire reinsurance more efficiently, thanks to the increasing size of the risk pool providing economies of scale and the expanded diversification, both geographic and peril based, which also makes its risk transfer more efficient.
Panama is particularly exposed to financial impacts from rainfall. As an example, the CCRIF highlights the “La Purisima” rainfall event in 2010 and flooding in the Province of Colon in 2012, both of which caused losses of more than US $270 million.
On one occasion this extreme rainfall resulted in the temporary closure of the Panama Canal, which of course could lead to significant business interruption costs for the country and operators using the canal as a waterway.
The diversification within the CCRIF risk pool is key in keeping sovereign disaster insurance affordable for its member countries.
The facility cites World Bank empirical studies that show insurance obtained through the CCRIF could cost as little as half the price a member country would pay if it approached the reinsurance market on its own.
CCRIF noted that for Panama its membership is part of the implementation of its Strategic Framework for Financial Management of Disaster Risk, which includes the development and implementation of retention and risk transfer tools.
Panama has purchased parametric excess rainfall protection from the facility for 2019, which will assist it in delivery of its strategic goals.
For CCRIF, the new member helps it to advance its own strategic goal of scaling up operations through increased membership. Its other goals include expanding the parametric insurance product range it offers and encouraging members to become better protected.
As it expands, the chances of the CCRIF tapping the capital markets for a portion of its reinsurance will also increase, opening up a broader range of capital sources to the facility.