Caribbean develops weather derivative for excess rainfall
* CCRIF says creating excess rainfall derivative
* May be packaged into catastrophe bond
* CCRIF to approach reinsurance panel
* Product set for market release 2009/2010
By Sarah Hills
LONDON, 28 Oct (Reuters) - The Caribbean Catastrophe Risk Insurance Facility (CCRIF) said it is developing an excess rainfall weather derivative, which in time may be packaged into a catastrophe bond to cover for flooding in the region.
The CCRIF has joined up with the Caribbean Institute for Meteorology and Hydrology (CIMH) and Kinetic Analysis Corporation (Kinanco) to develop and test a parametric excess rainfall insurance product for catastrophic flood coverage in the region.
The CCRIF is a risk pooling facility, owned and operated in the Caribbean for Caribbean governments and was developed by the World Bank in 2005. The new product builds on the CCRIF's existing facilities that cover the financial impact of catastrophic hurricanes and earthquakes to Caribbean governments.
Dr Simon Young, CEO of Caribbean Risk Managers, the Facility Supervisor of the CCRIF, told Reuters the structure of the securitisation was still in development but they would initially be selling it as an insurance product to their Caribbean government clients.
"It will be a separate product from our currently available CCRIF windstorm and earthquake coverage's -- though it will likely have a similar structure.
"At a later date after the development and testing periods, some of the risk transfer from CCRIF to the international markets may be packaged into a cat bond if necessary."
Young added the CCRIF will be looking for support from its existing panel of reinsurers, including Swiss Re (RUKN.VX), Munich Re (MUVGn.DE), Paris Re PRI.PA, Partner Re and Hiscox (HSX.L) -- all of which had expressed interest in participating.
The insurance product is based on a real time rainfall model for the Caribbean that produces a rainfall accumulation map every six hours.
The modelled rainfall index measures peak rainfall rather than collecting average rainfall data, and will be accessible for use as a basis for other parametric/weather derivative type products other than those offered directly by CCRIF.
Young admitted the CCRIF had been criticised for not covering flooding as part of its hurricane product -- particularly after a string of hurricanes and tropical storms in Haiti in 2008, where heavy rainfall from four major storms in August and September created fatal flooding and mudslides in the country.
"Our existing hurricane model doesn't include losses due to rainfall, it is based on damage from wind and ocean hazards. When it came to less powerful storms where the wind was not damaging enough to trigger, it was obvious that this was an issue - particularly to agriculture."
Young said the product will be ready for market by late 2009 or 2010.
