Provincial governments in the Philippines seal deal to strengthen country's disaster resilience, with Swiss Re's support

The World Bank estimates that each year an average of 20 typhoons make landfall in the Philippines, an archipelago of over 7000 islands, and cause major fiscal challenges: For example, in 2009, the losses caused by Typhoons Ondoy (Ketsana) and Pepeng (Parma) amounted to approximately USD 4.4 billion, or 2.7 percent of GDP.

Following that year's traumatic experience, the country decided to strengthen its resilience: In 2010 the Government enacted crucial legislation known as the Philippine Disaster Risk Reduction and Management Act, which mandated a shift from disaster response to disaster risk reduction and preparedness and introduced requirements for local governments to direct funds to disaster risk mitigation and emergency response.

A three tiered disaster risk financing strategy

Even before the catastrophic Typhoon Yolanda (Haiyan), the strongest storm ever recorded at landfall, caused over 6000 fatalities and damaged a million homes in nine regions in November 2013, the Philippines had started the implementation of a three tiered national Disaster Risk Financing and Insurance strategy.

At the national level, the Philippines government negotiated a contingent credit line with the World Bank to provide immediate liquidity in the aftermath of a natural disaster. This instrument can be triggered by the declaration of a national emergency, and was used to draw down USD 500 million by the Philippines in 2011 following typhoon Sendong (Washi). In future this may also be complemented by an additional risk transfer element, such as a cat bond.

As a next step, the Philippines government developed the idea to leverage the insurance market at subnational level in order to provide emergency funding to its most exposed provinces. Supported by the World Bank and Swiss Re, the Department of Finance bought an earthquake and typhoon coverage for 25 provinces situated along the eastern edge of the archipelago. The risk was placed with World Bank Treasury, who cedes 100% to local and global insurance markets, including Swiss Re and the state-owned insurer GSIS, a Swiss Re cedent. This USD 200 million parametric cover protects public and private assets, and is designed to provide provincial governments with liquidity to respond to disasters.

"Swiss Re is proud to support the Philippines in taking this important step towards greater fiscal resilience", said Thomas Kessler, Head of Swiss Re's Global Partnerships team for South East and East Asia. "It is the country's stated ambition to scale up the subnational coverage to all 81 provinces in the coming years, helping Philippines to transition from a highly risk exposed country to one with a comprehensive disaster risk financing strategy that few others can match."

Anticipated model for the Philippines three tiered disaster risk financing strategy

Source: Global Partnerships, Swiss Re