Softening the financial impact of natural catastrophes

Hurricane Alex has already left its mark on the Gulf coast of the United States and Mexico. The experts say that this was a relatively unusual occurrence in June and could signal a very active hurricane season.

Insured losses caused by natural catastrophes are  trending upwards. To manage their financial impact, Swiss Re has two concepts to deal with these risks in a more pro-active way. These are Pool Solutions and Parametric Covers.

Pool solutions

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.

Parametric covers

The government purchases parametric cover, say for EUR 1 bn, 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 securitisation of insurance risk.

For more on how these solutions work, please go to 'Pools and parametrics”' (see right).


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