Swiss Re to provide Alabama Insurance Fund with parametric insurance solution
Swiss Re today has entered into a historic agreement with the Alabama State Insurance Fund (“SIF”), to provide a three-year parametric insurance cover for the SIF’s primary catastrophic hurricane exposure.
Parametric solutions compensate the buyer based on the physical characteristics of a disaster.
The payment can be used for any purpose, including emergency response costs, replacing lost tax revenue and funding of increased insurance costs.
This agreement marks the first time a US state government has utilized such an innovative solution to transfer its financial exposure from natural catastrophes to the private sector. Swiss Re said this is a critical step in dealing with the potentially massive costs associated with natural disasters.
“We are pleased to work with Alabama’s State Insurance Fund to help them with their risk management needs through this first-of-its-kind program,” said Raj Singh, Member of Executive Committee and Chief Risk Officer at Swiss Re, in a press release. “Until now, governments, and ultimately taxpayers, have been left shouldering the burden of paying for emergency expenses and reconstruction well after the disaster has passed. In other countries, we have worked successfully with government bodies to address this exposure. These innovative solutions are applicable to governments of all sizes and can be applied to US states who have an economic exposure to catastrophes – whether they be hurricanes, wildfires, or earthquakes among others.”
Swiss Re has experience in providing governments, international development banks and non-governmental organizations with tailor-made, innovative risk transfer solutions to help them cope with the financial consequences of major catastrophic events.
In 2009, Swiss Re worked with Mexico’s Ministry of Finance and the World Bank to develop the MultiCat Mexico program, providing USD 290 million of coverage for earthquakes and hurricanes. The insurance coverage provides Mexico emergency funds after a major disaster, helping the government address the post-disaster needs of its citizens.
Swiss Re is also the lead reinsurer of the Caribbean Catastrophe Risk Insurance Facility (CCRIF), the first parametric insurance solution covering several regional Caribbean governments. In a demonstration of the capabilities of parametric solutions, the CCRIF’s policy for Haiti was triggered following the earthquake in January 2010, delivering the Haitian government much needed emergency funds shortly after the disaster.
