Projet d'assurance catastrophe en Haïti

Document of The World Bank Report No: ICR00001865 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H2780) ON A GRANT IN THE AMOUNT OF SDR 6.0 MILLION (US$9 MILLION EQUIVALENT) TO THE REPUBLIC OF HAITI FOR A CATASTROPHE INSURANCE PROJECT May 13, 2011 Sustainable Development Department Caribbean Country Management Unit Latin America and the Caribbean Region Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange Rate Effective February 2011) Currency Unit = Haitian Gourde (HTG) US$1.00 = HTG 37.85 GOVERNMENT OF HAITI FISCAL YEAR October 1 to September 31 ABBREVIATIONS AND ACRONYMS AFD Agence Française de Développement ART Alternative Risk Transfer CARICOM Caribbean Community and Common Market CAS Country Assistance Strategy CCRIF Caribbean Catastrophe Risk Insurance Facility CDB Caribbean Development Bank CIDA Canadian International Development Agency CRO Country Risk Officer DFA Dynamic Financial Analysis DFID Department for International Development (United Kingdom) EC European Commission ERR Economic Rate of Return GFDRR Global Facility for Disaster Reduction GIRF Global Indexed Reinsurance Facility IBLIP Index-Based Livestock Insurance Project (Mongolia) IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation IFI International Financial Institutions IMF International Monetary Fund ISDS Integrated Safeguards Data Sheet ISR Implementation Status and Results Report JSDF Jamaican Social Development Fund MDTF Multi-donor Trust Fund MIGA Multilateral Investment Guarantee Agency OECS Organization of Eastern Caribbean States PAD Project Appraisal Document PCN Project Concept Note PHRD Policy and Human Resources Development (Japan) PIC Public Information Center PID Project Information Document PML Probable Maximum Loss SPV Special Purpose Vehicle TCIP Turkish Catastrophe Insurance Pool TORs Terms of reference TRE-FDP Treasurer’s Central Vice Presidency for Finance and Private Sector Development USAID United States Agency for International Development WB World Bank XL Excess-of-loss Vice President: Pamela Cox Country Director: Alexandre Abrantes Sector Manager: Guang Zhe Chen Project Team Leader: Francis Ghesquiere ICR Team Leader: Olivier Mahul HAITI Catastrophe Insurance Project CONTENTS Data Sheet A. Basic Information i B. Key Dates i C. Ratings Summary i D. Sector and Theme Codes ii E. Bank Staff ii F. Results Framework Analysis ii G. Ratings of Project Performance in ISRs iv H. Restructuring iv I. Disbursement Graph iv 1. Project Context, Development Objectives and Design ............................................... 1 2. Key Factors Affecting Implementation and Outcomes .............................................. 5 3. Assessment of Outcomes ............................................................................................ 7 4. Assessment of Risk to Development Outcome......................................................... 12 5. Assessment of Bank and Borrower Performance ..................................................... 13 6. Lessons Learned ....................................................................................................... 15 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 17 Annex 1. Project Costs and Financing .......................................................................... 18 Annex 2. Outputs by Component ................................................................................. 19 Annex 3. Economic and Financial Analysis ................................................................. 20 Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 22 Annex 5. Beneficiary Survey Results ........................................................................... 24 Annex 6. Stakeholder Workshop Report and Results................................................... 25 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 26 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 27 Annex 9. List of Supporting Documents ...................................................................... 28 MAP IBRD 33417R i A. Basic Information Country: Haiti Project Name: Haiti Catastrophe Insurance Project ID: P104690 L/C/TF Number(s): IDA-H2780 ICR Date: 05/13/2011 ICR Type: Core ICR Lending Instrument: SIL Borrower: GOVERNMENT OF HAITI Original Total Commitment: XDR 6.0M Disbursed Amount: XDR 5.8M Revised Amount: XDR 6.0M Environmental Category: C Implementing Agencies: Sagicor Cofinanciers and Other External Partners: B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 01/12/2007 Effectiveness: 07/31/2007 07/31/2007 Appraisal: 01/31/2007 Restructuring(s): Approval: 03/08/2007 Mid-term Review: 07/31/2008 12/01/2008 Closing: 12/31/2010 12/31/2010 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Quality of Supervision: Highly Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Performance: Satisfactory Overall Borrower Performance: Satisfactory ii C.3 Quality at Entry and Implementation Performance Indicators Implementation Performance Indicators QAG Assessments (if any) Rating Potential Problem Project at any time (Yes/No): No Quality at Entry (QEA): None Problem Project at any time (Yes/No): No Quality of Supervision (QSA): None DO rating before Closing/Inactive status: Moderately Satisfactory D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Non-compulsory pensions and insurance 100 100 Theme Code (as % of total Bank financing) Natural disaster management 100 100 E. Bank Staff Positions At ICR At Approval Vice President: Pamela Cox Pamela Cox Country Director: Alexandre V. Abrantes Caroline D. Anstey Sector Manager: Guang Zhe Chen John Henry Stein Project Team Leader: Francis Ghesquiere Francis Ghesquiere ICR Team Leader: Olivier Mahul ICR Primary Author: Olivier Mahul F. Results Framework Analysis Project Development Objectives ( from Project Appraisal Document ) The development objective of the project is to reduce the country financial vulnerability to natural disasters (earthquakes and hurricanes) of Haiti. This will be achieved through the establishment of the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and the financing of catastrophe insurance coverage from the Facility. The project aims to allow Haiti to join the CCRIF and benefit from financial protection against catastrophic earthquake and/or hurricane events. Without this grant, it is unlikely Haiti would join this pilot initiative that represents the first entity created to protect small island states from the financial impact of natural disasters. iii Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Indicator Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Indicator 1 : To reduce Haiti's financial vulnerability to natural disasters (earthquakes and hurricanes). Value quantitative or Qualitative) Date achieved Comments (incl. % achievement) (b) Intermediate Outcome Indicator(s) Indicator Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Indicator 1 : The total claim paying capacity of the CCRIF. Value (quantitative or Qualitative) 0 $111.1 million Date achieved 02/06/2007 12/31/2010 Comments (incl. % achievement) Indicator 2 : The total sum insured for Haiti. Value (quantitative or Qualitative) 0 $51.8 million Date achieved 02/06/2007 12/31/2010 Comments (incl. % achievement) iv G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 04/20/2007 Satisfactory Satisfactory 0.00 2 10/26/2007 Satisfactory Satisfactory 5.14 3 04/07/2008 Satisfactory Satisfactory 5.14 4 06/12/2008 Satisfactory Satisfactory 7.71 5 11/05/2008 Satisfactory Satisfactory 7.71 6 03/31/2009 Satisfactory Satisfactory 7.71 7 10/12/2009 Satisfactory Satisfactory 9.00 8 05/21/2010 Moderately Satisfactory Satisfactory 9.00 9 02/13/2011 Moderately Satisfactory Satisfactory 9.00 H. Restructuring (if any) Not Applicable I. Disbursement Profile 1 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. Haiti is highly exposed to adverse natural events (including hurricanes, earthquakes, volcanic eruptions, and tidal waves), which can result in disasters affecting the country’s entire economic, human, and physical environment. On average, at least one major hurricane and numerous tropical storms cross the Caribbean each year, often impacting Haiti. A major hurricane strikes Haiti every seven years on average. 2. Larger countries can generally absorb the impact of these adverse natural events by subsidizing an affected region with revenues from unaffected regions. This type of geographic diversification of risk is limited in Haiti. Similarly, Haiti has limited borrowing capacity preventing it from spreading its risk over time by accessing credit. Finally, Haiti has very limited access to international insurance markets. High transaction costs and the relatively small business brought to the market keep insurance penetration in the country to a minimum. Constrained by its size, limited borrowing capacity and poor access to insurance, Haiti is less able to cope with losses from adverse natural events and lacks resilience to the onset of disasters. 3. A critical need of the governments of small states (including Haiti) in the aftermath of a disaster is for short-term liquidity to maintain essential government services until additional resources become available. With low level of financial reserves, and limited access to credit and insurance, mobilizing resources after a major disaster will often take months and absorb energy that would be better used elsewhere. This translates into delayed response, financial stress and additional hardship for the affected population. 4. Following the devastation caused by hurricanes in the Caribbean in 2004, the CARICOM Heads of State requested World Bank assistance to gain access to affordable and effective disaster risk financing instruments. In January 2006, with grant funding from the Government of Japan and support from the Jamaican Social Development Fund (JSDF), the World Bank initiated the preparatory studies for the establishment of the CCRIF. The Facility was established in May 2007 and started operations one month later, providing coverage to 16 Caribbean countries, including Dominica, Grenada, St. Lucia, St. Vincent & the Grenadines, Anguilla, Antigua and Barbuda, Belize, the Bahamas, Barbados, Bermuda, the Cayman Islands, Haiti, Jamaica, St. Kitts and Nevis, Trinidad and Tobago and Turks and Caicos Islands. The CCRIF receives support from a Multi- donor Trust Fund (MDTF) established with contributions from Bermuda, Canada, France, Ireland, the United Kingdom, the Caribbean Development Bank, the European Union and IBRD. 5. The Caribbean Catastrophe Risk Insurance Facility (CCRIF) provides participating countries with catastrophe insurance coverage against major earthquakes and/or hurricanes (see Box 1). The Facility enables governments to purchase liquidity coverage that helps protect their budget against the shock of natural disasters. The 2 CCRIF provides cash payout within weeks of an insured event (to date within two to three weeks) to help the affected country address immediate financial needs. The 16 countries that joined CCRIF at inception are still members of the Facility today. 1.2 Original Project Development Objectives (PDO) and Key Indicators 6. The project development objective was to reduce Haiti’s financial vulnerability to natural disasters (earthquakes and hurricanes). This was achieved by providing an IDA grant to allow Haiti to join the CCRIF and purchase financial protection against catastrophic earthquake and/or hurricane perils. Given Haiti’s fragile economic and fiscal situation it was unlikely that it would have joined this pilot initiative without this grant. As such, the project supported the establishment and viability of the CCRIF, which was believed to require at least eight members to become viable 7. The key intermediate indicators for the project were: (i) The total claim paying capacity of the CCRIF and (ii) the total sum insured for Haiti. 1.3 Revised PDO and Key Indicators, and reasons/justification 8. N/A 1.4 Main Beneficiaries 9. The main beneficiary was the government (Ministry of Economy and Finance) of Haiti, allowing this government to respond more effectively to the initial needs of the affected population resulting from adverse natural events. In this regard, CCRIF was an efficient cost-effective alternative to trying to obtain insurance directly in the market or retaining the financial risk by building its own reserves. 3 Box 1. The Caribbean Catastrophe Risk Insurance Facility  The Caribbean Catastrophe Risk Insurance Facility (CCRIF) allows CARICOM governments to purchase insurance coverage to finance immediate post-disaster liquidity needs. The Facility allows participating countries to pool their country- specific risks into one, better-diversified portfolio. This diversification results in a reduction in premium cost of approximately 50 percent relative to similar products in the commercial markets.  Claims payments depend on parametric triggers . Index-based (or parametric) insurance instruments pay claims based on the occurrence of a pre-defined event rather than an assessment of actual losses on the ground. This measurement, made remotely by an independent agency, allows for transparent, low settlement costs and quick-disbursing contracts.  The Facility retains the first risk layer through its own reserves. Initial funding was needed to allow the Facility to retain some of the risks and access the reinsurance markets where it is most efficient. Bermuda, Canada, France, Ireland, the United Kingdom, the Caribbean Development Bank, the European Union and IBRD contributed US$67 million to the MDTF.  The Facility transfers the risks it cannot retain to the international financial markets. This is done through reinsurance. For the 2009-10 season, the CCRIF retained US$20 million and placed US$132.5 million in the reinsurance market and in a catastrophe swap intermediated by the World Bank Treasury.  The Facility is one of the most resilient catastrophe insurance pools worldwide. The CCRIF has developed a financial strategy and maintains sufficient risk financing capacity to survive a 1-in-1000 year event without drawing on more than $20 million of its own assets to pay claims. Should the total insured losses exceed its claims- paying capacity; payouts will be prorated based on the total amount of expected claims compared to the remaining available funds.  The CCRIF was established as an independent legal entity controlled by a Board of Director representing donors and member countries. The Facility was created as an Insurance Captive owned by a trust. Both entities are registered in the Cayman Islands. The CCRIF is managed by an Insurance Manager with the financial and technical advice of a specialized Facility Supervisor. The CCRIF Board of Directors is composed of representatives from the donors and participating countries.  The World Bank acts as fiduciary agent for funding provided by donors. The Bank is not a Board member of the CCRIF, but has participated in most of the meetings as an observer. It retains certain control in the initial phase on the use of donor funds as the trustee of the IDA-administrated MDTF. The Grant Agreement with CCRIF sets forth the terms and conditions under which grant funds are provided and how those funds can be used.  Insured countries pay an annual premium commensurate with their own specific risk exposure. Parametric insurance products are priced for each country based on the individual country risk profile. Annual premiums vary from US$200,000 to US$4 million, for coverage ranging from US$5 million to US$60 million per peril. 4 1.5 Original Components 10. The proposed project provided the Borrower with insurance coverage against natural disasters (earthquakes and hurricanes). The project financed the participation fee and the annual country-specific insurance premiums (100 percent of the premium for the first two years and 50 percent of the premium for the third year) necessary to join and obtain annual coverage from the CCRIF. 11. The IDA financing was provided in four installments issued to CCRIF at the request of Haiti’s Ministry of Economy and Finance. The financing was withdrawn by the Borrower from its grant account for direct payment into the Facility. The project included the following two components: (a) payment of participation fee and (b) contribution to annual insurance premium for the first three years. Component 1: Payment of the participation fee to the CCRIF 12. This component financed Haiti’s participation fee, which needed to be at least equal to its annual premium. The IDA contribution to the participation fees is summarized in Table 1. Table 1: IDA Contribution to Estimated Participation Fees (US$m) Participation Fee Estimated (in the PAD) Actual Haiti 2.57 2.57 TOTAL 2.57 2.57 Component 2: Payment of annual insurance premium 13. This component financed 100 percent of Haiti’s annual insurance premium for the first two years (2007-08 and 2008-09) and half for the third year (2009-10). Insurance premiums paid are detailed in Table 2. Table 2: IDA Contribution to Annual Insurance Premium (US$m) 2007 2008 2009 TOTAL Est. Actual Est. Actual Est. Actual Est. Actual Haiti 2.57 2.57 2.57 2.57 1.285 1.285 6.425 6.425 TOTAL 2.57 2.57 2.57 2.57 1.285 1.285 6.425 6.425 5 1.6 Original Components 14. Components were not revised during the project execution. 1.7 Other significant changes 15. None 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 16. Lessons from earlier operations, including the Turkish Catastrophe Insurance Pool and previous attempts at designing catastrophe pools for the Caribbean region and developing parametric insurance solutions were taken into account in the preparation of this operation.  Need for initial reserves: Previous experience in setting up insurance pools shows that there is a need for a minimum level of reserves in the pool to make it financially sustainable over the long run. Insufficient reserves in the CCRIF would have lead to over-dependence on costly risk transfer instruments, reducing the capacity of the Facility to increase its reserves overtime. Initial donor contributions of US$67.4 million helped put the CCRIF on sound financial track from the beginning by reimbursing the CCRIF for certain administrative, operational, R & D, and communications costs and for claims paid within its own risk retention. The expectation was for the CCRIF to build up its reserves to US$100 million within five years.  Need for state-of-the-art catastrophe risk modeling: With financing from the Government of Japan, support from JSDF, and specialized consultants the team built a sophisticated catastrophe risk mode for Haiti and for the region as a whole. This was essential to ensure the sound design and pricing of the parametric (earthquake and hurricane) insurance products that the CCRIF was to offer.  Need for transparency : The CCRIF’s country-specific catastrophe risk models allow for the transparent pricing of catastrophe insurance products. The pricing formula take into account the specific risk profile of each country.  The need for early involvement of donor and extensive consultation with member countries: The task team engaged early-on in a gradual process of consultation and workshops with donors, officials and experts from the region to ensure that the CCRIF initiative would be tailored to the needs of the client countries and well understood.  Critical business volume: A minimum number of countries, estimated at eight, was required to ensure that the Facility would have the diversification in its portfolio necessary to offer competitive and affordable pricing on the coverage provided. The IDA-financing under this project ensured that the poorest countries in the region could join the Facility at its inception. 6 2.2 Implementation 17. The grant proceeds were transferred annually from the Bank to the CCRIF account at the request of the Haitian Ministry of Economy and Finance. To effect the transfer, the Ministry of Economy and Finance submitted a withdrawal application for the value of the participation fee and/or premium. The value dates of the direct payments to the CCRIF of the grant proceeds for the IDA-contribution to the beneficiary country’s participation fee and annual insurance premiums are presented in Table 3. Table 3: Value Date of Direct Payment of IDA Contribution to Participation fee and Annual Insurance Premiums 2007 2008 2009 Haiti August 17 June 11 June 3 18. The CCRIF insurance policy period, that is the period during which Haiti is insured, is from June 1 to May 31 of the following year. Standard insurance contracts are effective once the premium is paid. 19. In close collaboration with the Facility Supervisor, the Bank liaised with Haiti’s Ministry of Economy and Finance and the CCRIF to ensure that the premium payments were made on time and the insurance policy issued by the start of the season. 20. Haiti availed itself of financing from CIDA (via the CDB) to cover the 50 percent portion of its 2008-2009 premium not paid by IDA. This was consistent with the expectation in the PAD that Haiti would, given its severe and ongoing fiscal constraints, need to continue to rely on donor support for payment of its premiums. The IDA contribution that year could only be processed once Haiti had paid the other half of the premium. Largely because of this, the direct payment of the IDA-contribution to the CCRIF for Haiti occurred after the date of June 1. To avoid lapse in coverage, CCRIF established a premium payment warranty in place until the premium was collected, so that the insurance coverage started on June 1. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 21. Following the results monitoring framework approved in the Project Appraisal Document (PAD), the Bank conducted in depth reviews of the CCRIF’s first, second and third years of operations, including interview with CCRIF members, donors, other stakeholders and CCRIF Directors and service providers.. The Bank regularly reviewed the CCRIF’S annual reports including its unaudited and audited financial statements. In addition, the Bank attended nearly all CCRIF Board meetings as an observer. 2.4 Safeguard and Fiduciary Compliance 22. The project was classified under category C. 7 23. Due to the specifics of the project components and implementation arrangements, most standard fiduciary requirements and procedures did not apply to the project. Because the IDA disbursements went directly to CCRIF’s account, Haiti’s participation in project financial management was limited to the annual submission of a withdrawal application requesting direct payment from the World Bank to the CCRIF. The Ministry of Economy and Finance had sufficient capacity to do so. The Bank closely monitored the project implementation process to ensure that payments were requested and processed on time. A financial supervision mission to the CCRIF Insurance Manager’s office in the Cayman Islands verified his capacity to ensure that the IDA disbursements were used for their intended purposes. The project components did not finance works or consulting services and the only contracts were the participation and annual insurance contracts between the CCRIF and Haiti. Thus, there was no need for a procurement plan. 2.5 Post-completion Operation/Next Phase 24. The Bank will continue to supervise the CCRIF until the IDA-administered MDTF is fully disbursed. As of the end of January 2011, $4.1 million remained available to CCRIF under its Grant Agreement. An additional $1 million remained in the MDTF which has not yet been transferred to the Grant Agreement. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation 25. The Bank has been working with the GoH over the past years on the implementation of an Emergency Recovery and Disaster Management Project, aimed at reducing the country’s physical vulnerability and strengthening their emergency management capacity. This project complemented ongoing activities in disaster risk management in Haiti at the time. 26. In the higher-level strategic context, the project contributed to the objective spelled out in Section IV of the Millennium Development Goals, underscoring the need “to intensify our collective effort to reduce the number and effects of natural and man- made disasters.” 27. Haiti was affected by a January 12, 2010, earthquake of sufficient magnitude to trigger a payout under its CCRIF policy. In this case, the payout from CCRIF, which was made only two weeks after the disaster, achieved its objective of helping the country to address the immediate financial impact of the disaster. 8 3.2 Achievement of Project Development Objectives 28. The project development objective was to reduce Haiti’s financial vulnerability to natural disasters (earthquakes and hurricanes). This objective was to be achieved by providing financing to allow Haiti to join the CCRIF and purchase financial protection against catastrophic earthquake and/or hurricane events. 29. The IDA grant allowed Haiti to join the CCRIF from its onset, thus contributing to the Facility’s viability. More specifically, the IDA grant financed Haiti’s participation fee and 100 percent of its premiums for hurricane and earthquake insurance for 2007- 2008 and 2008-2009, and 50 percent of this premium for 2009-2010. This achieved the PDO because, by joining the CCRIF and purchasing insurance, Haiti reduced its financial vulnerability to hurricanes and earthquakes. 30. CCRIF’s payout to Haiti (US$7,753,579) on January 26, 2010, two weeks following the January 12, 2010, earthquake, has shown the effectiveness of CCRIF insurance in terms of reducing Haiti’s financial vulnerability to natural disasters. 31. The Project also achieved its intermediate outcomes.  First, CCRIF has become a sustainable facility. The indicator for this in the PAD was its claims paying capacity. As of end-November 2010, CCRIF’s unaudited financial statements indicated that it had shareholder equity of $82.6 million and total assets of $111.1 million. In contrast, the PAD seems not to have anticipated that CCRIF’s reserves would exceed $80.0 million (e.g., see Figure A.11.4 page 37). For 2010-2011 (beginning June 1, 2010), CCRIF obtained $111 million in reinsurance on top of the $20 million in risk that it retained. With this $131 million in claims paying capacity, the CCRIF is estimated to be able to withstand a series of events having a modeled probability of occurring only 1 in 1,000 years. Given its additional resources (over and above the first $20 million), the Facility is estimated to have the capacity to pay claims above the top of its reinsurance associated with a series of events having a modeled probability of occurring only 1 in 10,000 years, although it would need a recapitalization thereafter to continue operations. In contrast, the PAD did not anticipate that the Facility’s claims paying capacity would go beyond a 1 in 250 year event over the first five years of its operation (see pg. 39). The CCRIF’s claims paying capacity significantly exceeds that of the California Earthquake Authority – 1 in 800 years – which is considered among the safest insurance facilities in the world. Thus, the CCRIF should be able to continue to provide liquidity coverage to interested countries for the foreseeable future.  Second, Haiti is benefiting from partial coverage against hurricane and earthquake risks. The indicator for this in the PAD was the insured sum for Haiti (up to 20 percent of total losses). For 2010-2011, Haiti’s aggregate coverage stood at $51.8 million ($35.6 million for hurricane and 16.3 million 9 for earthquakes). This surpasses the expectation of $45 million in aggregate coverage by project end. 3.3 Efficiency 32. The Bank and the Facility Supervisor worked closely with Haiti to design the most cost-effective coverage of the insured hazards through the selection of the terms and conditions of the insurance policies (e.g., attachment points, exhaustion points and coverage). 33. The cost of insurance (that is, the annual insurance premium) is driven by three main factors: the annual expected loss, the operating cost and the cost of capital. The annual expected loss reflects the insured risk exposure of the country.  The CCRIF’s annual expected loss rises in line with its exposure and/or the modeled frequency of its claims payments.  The Operations Manual of the CCRIF establishes a guideline that the annual operating costs (excluding the reinsurance costs, research and development, and technical assistance and broad stakeholder outreach activities) should not exceed 5 percent of the annual premium volume and the operating costs have remained within this guideline. In comparison, it should be noted that standard operating costs in the non-life insurance market are usually close to 30 percent.  Securing capital to cover excess losses is another cost and the CCRIF has also been efficient in this regard. Through CCRIF, its 16 members have derived the benefits of regional risk diversification. It is estimated that, for CCRIF’s 2008-2009 portfolio, its aggregate probable maximum loss (PML) from a 1 in 1,500 year event was 74 percent lower than the sum of the countries’ individual policy limits. This means that the amount of capital which was needed to sustain such a remote event was 74 percent lower when countries pooled their risks through the CCRIF than if they had gone to the insurance market individually to cover such an event. The CCRIF is also efficient compared with the costs its members would incur if they retained the catastrophe risk themselves, i.e., built their own reserves to sustain the event – approximately 70 percent less expensive for hurricane risk and 50 percent less expensive for earthquake risk. In addition, due its transparent, well structured, and diversified portfolio, the CCRIF has been able to access the reinsurance market on very good terms. The reinsurance multiples (reinsurance premiums/annual expected reinsurance loss) were lower than two for the CCRIF’s first three seasons and, although the cost rose somewhat for the CCRIF’s fourth season, due to its introduction of a new hazard loss estimation model, it remained advantageous. As reinsurers are gaining familiarity with the new model, it is likely that costs will again decline. 34. In addition, the CCRIF has been able to reduce its premium rates for its members by 30 percent since its establishment, because of its growing financial strength, which has 10 been facilitated by the MDTF, low reinsurance costs, and significantly lower than expected indemnity payouts during its first three years of operation. More specifically, the premium multiples (insurance premium/annual expected insurance loss) decreased successively by 10 percent from the first to the second season, 11 percent from the second to the third season, and another 12.5 percent from the third to the fourth season. Most of the participating countries decided to take advantage of the improved pricing by increasing their insurance coverage and/or lowering their attachment point (insurance deductible), rather than by lowering their premium payment. 35. Table 4 summarizes the evolution of the catastrophe coverage of Haiti over the first three seasons, 2007-10. Table 4: Evolution of the Catastrophe Coverage of Haiti, 2007-2010 Hurricane policy Earthquake policy Total premium Attachment point Coverage Attachment point Coverage Haiti = = = = = Note: =: unchanged; +: increase; -: decrease. Attachment point: value at which an insurance payout is triggered. Coverage: maximum payout for a given peril (earthquake or hurricane) during the policy period. 36. Table 5 illustrates the changes from the third season (2009-2010), which was the last year of IDA support for Haiti, to the fourth (2010-2011). Perhaps influenced by the January 2010 earthquake, Haiti, reduced its hurricane coverage and increased its earthquake coverage. Table 5: Evolution of the Catastrophe Coverage of Haiti, 2009-2011 Hurricane policy Earthquake policy Total premium Attachment point Coverage Attachment point Coverage Haiti = - - + + Note: =: unchanged; +: increase; -: decrease. 3.4 Justification of Overall Outcome Rating Rating: Satisfactory 37. The primary development objective of this project, i.e., Haiti is eligible for insurance payout (and has received a payout in case of an insured event), was fully met. Haiti joined the CCRIF and purchased catastrophe insurance coverage on August 2007 and has purchased catastrophe insurance coverage for each of the CCRIF’s four years of operation. Haiti received an insurance payout (US$7,753,579) triggered by the earthquake that hit the Caribbean nation on January 12, 2010. This payout is believed to be the first significantly financial inflow that the country received following the catastrophe. 11 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 38. Natural disasters have a disproportional impact on poorer segments of the population. Low-income households often settle in the most vulnerable areas and live in poorly constructed housing. With low savings, the poor are also less able to cope economically with the loss of fixed assets or livelihoods that they are likely to suffer after a catastrophe. Being more vulnerable, they are also more dependent on government support and relief and recovery programs. The payout to Haiti ensured that an initial inflow of resources was immediately available to the government when its fiscal pressure was particularly acute so that it could continue to pay civil servants and begin to put such programs in place. (b) Institutional Change/Strengthening 39. The project contributed to an increased awareness in the Ministry of Economy and Finance about the economic and fiscal impacts of natural disasters on Haiti and the role that financial risk transfer can play as part of a broader national disaster risk reduction and management strategy. It also contributed to build capacity in the area financial disaster risk management. Ongoing dialogue between CCRIF and officials from the Ministry of Economy and Finance, particularly at the time of policy renewal, helped to inform it about Haiti’s exposure to adverse natural events. The Ministry’s participation in decision-making regarding the terms of the CCRIF insurance policies (attachment points, exhaustion points, coverage limits, ceding percentages, etc.) helped build its understanding of the products. Also, Haiti’s officials have had opportunities to participate in workshops and events organized or co-organized by CCRIF on comprehensive disaster risk management and climate change adaptation such as the comprehensive disaster management conferences of the Caribbean Disaster Emergency Management Agency in 2008, 2009, and 2010. They also had the opportunity to attend a number of CCRIF-sponsored workshops on topics such as rainfall modeling and the economics of climate adaptation. 40. The CCRIF has also been promoting the appointment/designation of a Country Risk Officer (CRO). The CRO would be responsible for the overall disaster risk management strategy of the country; including the fiscal protection of the state against natural disasters. This proposition is currently under discussion. (c) Other Unintended Outcomes and Impacts (positive or negative) 41. As a CCRIF member, Haiti was able to benefit from the CCRIF’s technical assistance following the January 12, 2010, earthquake. The TA included high resolution modeling during the approach of storms to estimate storm-related rainfall, wind speed, and coastal flooding at critical locations such as aid operation centers, refugee camps, and transportation hubs. In addition, with the CCRIF’s support, the Caribbean Institute for Meteorology and Hydrology devised simple surface water flow models, which, together 12 with historic basin-specific rainfall data, could be used by the Haitian authorities and donors to guide decisions regarding long-term resettlement. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 42. N/A 4. Assessment of Risk to Development Outcome Rating: Satisfactory 43. PDO indicator : Haiti is eligible for insurance payment (and have received payment) in case of an insured event. As noted above, this indicator was achieved. Haiti benefited from project funding to pay its participation fee and premiums and obtained CCRIF hurricane and earthquake insurance coverage for the three years since the inception of CCRF in 2007. 44. First intermediate result indicator : Total claims paying capacity of the CCRIF. As also noted above, the CCRIF has robust claims paying capacity. With $111 million in reinsurance, the CCRIF has the capacity to withstand a series of catastrophic events having a probability of occurring only 1 in 1,000 years without needing to draw more than $20 million from its own reserves. Given its additional resources (over and above the first $20 million), the Facility is estimated to have the capacity to pay claims above the top of its reinsurance associated with a series of events having a modeled probability of occurring only 1 in 10,000 years, although it would need a recapitalization thereafter to continue operations, This substantially exceeds the expectation in the PAD that it could take the CCRIF five years to build sufficient capacity to pay claims associated with a 1 in 250 year event. It also compares favorably with the claims paying capacity of other catastrophe pools such as the California Earthquake Authority (1 in 800 years) and the Turkish Earthquake Fund (1 in 200 years). 45. Second intermediate result indicator : Total sum insured for each country. For 2010-2011, Haiti’s aggregate coverage stood at 51.8 million ($35.6 million for hurricane and 16.3 million for earthquakes). This surpasses the $48.3 million in aggregate coverage anticipated in the PAD (See PAD Table A.9.1, page 29). 46. Risk to PDO : The principal risk to the sustainability of the PDO arises from its dependence on donor support to pay its premiums, which is expected to continue, but this risk was anticipated in the PAD and is believed to be low. Donors may assess the costs and benefits of CCRIF insurance relative to use of the funds for direct investment in disaster risk reduction measures or supporting social mitigation programs. It is likely, however, that the recent CCRIF payouts not just to Haiti following January 2010 earthquake, but also to Antigua and Barbuda after Hurricane Earl, and to Barbados, St. Lucia, and St. Vincent & the Grenadines in the aftermath of Hurricane Tomas will provide a powerful argument in favor of the continued to support to Haiti for financial 13 risk transfer through purchase of CCRIF insurance. Support for an increasingly visible and important Caribbean institution and access to CCRIF-funded technical assistance and knowledge-sharing programs are additional incentives to continue Haiti’s CCRIF membership. Finally, the introduction of CCRIF’s excess rainfall product, expected for 2011-2012, will provide another reason for donors to support Haiti’s continued participation in the Facility. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 47. The Bank responded efficiently to a request from the CARICOM Heads of State to gain access to affordable and effective disaster risk financing instrument by assisting in the establishment of the CCRIF. It mobilized and coordinated highly specialized expertise to design and implement the Caribbean Catastrophe Risk Insurance Facility. This was a path-breaking effort as the Facility is the first regional parametric catastrophe risk pool in the world. One area where quality at entry could have been improved was the results framework, particularly the intermediate outcome indicators, which lacked specificity. For the first such outcome, “CCRIF is created as a sustainable Facility,” the indicator was “total claims-paying capacity.” The PAD might have established a target for this capacity, expressed in terms of either an absolute amount of CCRIF assets or the return period of a series of events it should be able to withstand. For the second intermediate outcome, “country benefits from partial coverage against hurricane and earthquake risks,” the indicator was “total sum insured for each country (up to 20% of total losses).” It was implicit that “losses” referred to those suffered by the government, rather than physical damage in the country, and to those incurred within the return period between the attachment and exhaustion points of the country’s policies. It would have been preferable for these matters to have been made explicit. (b) Quality of Supervision Rating: Highly satisfactory 48. The Haiti Catastrophe Insurance Project itself required little direct supervision because there was no procurement and funds did not pass through Haitian institutions or accounts, but rather went directly to the CCRIF. However, as Project success depended crucially on the CCRIF’s success and as the CCRIF was highly innovative – the first regional catastrophe risk insurance pool established worldwide – the Bank supervised the Facility intensively. Accordingly, during the Haiti Catastrophe Insurance Project’s three- year implementation period, the Bank conducted three in-depth supervision missions and produced two mid-term review reports. These reports and their recommendations were 14 shared and discussed with the CCRIF Board of Directors and service providers, some CCRIF members, and other stakeholders, including donors and Caribbean regional organizations. The findings and recommendations of the third supervision mission were discussed with the CCRIF Board of Directors in December 2010 and a report was published in April 2011. In addition, the World Bank attended all but two of the CCRIF Board’s quarterly meetings as an observer to offer guidance and technical support. A major focus of the Bank during its on-going dialogue with the CCRIF, supervision missions, and its participation in the CCRIF Board meetings has been to help the CCRIF strengthen its Operations Manual, notably with respect to the Facility’s governance arrangements, including financial management and procurement processes. The Bank sent financial management missions to CCRIF headquarters in the Cayman Islands to supervise the FM aspects of the project and verify the Facility’s capacity to use project funds for their intended purposes. Other areas of emphasis in the Bank’s supervision of the CCRIF have been on supporting the Facility’s research and development activities and on advising it on pricing, risk transfer, and cash and asset management policies; strengthening its stakeholder outreach; and structuring its technical assistance program. In addition to the three in-depth mid-term evaluations, reports to management on the Board meetings and twice-yearly ISRs were, in accordance with LCR regional practice, produced, reviewed by management and filed in IRIS. 49. In addition to the above, the Bank, the CCRIF, and CCRIF’s reinsurance providers conducted a joint test of the claims payment process for a simulated hurricane to ensure that the respective roles were well understood and that the established procedures would work smoothly. The Bank has processed within 48 hours CCRIF’s withdrawal applications associated with all insured events. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory 50. The Bank’s performance was satisfactory at entry and highly satisfactory during supervision, as described above. 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory 51. The grant proceeds were transferred annually from the Association to Haiti’s CCRIF account at the request of the Ministry of Economy and Finance. The Ministry of Economy and Finance submitted a first withdrawal application for the value of the participation fee and the annual insurance premium in 2007; a second withdrawal application for the value of the annual insurance premium in 2008; and a third withdrawal application for 50 percent of the value of the annual insurance premium in 2009. Ministry 15 of Economy and Finance officials led the country’s annual discussion with the CCRIF Facility Supervisor regarding renewal of Haiti’s policies. (b) Implementing Agency or Agencies Performance Rating: N/A (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 52. See paragraph 51. 6. Lessons Learned 53. This project offered Haiti the opportunity to join the first ever regional catastrophe insurance pool and thereby secure immediate liquidity in case of covered disasters (earthquakes and hurricanes). It is part of a broader development agenda of Bank support aimed at reducing the vulnerability of Haiti and other Caribbean island countries to natural disasters. After three years of operations, several lessons can be drawn from this project. 54. Risk pooling is effective in significantly reducing the cost of individual country’s financial risk transfer through insurance. The CCRIF’s risk financing strategy of relies on a strong reserve base (made of donors’ initial contributions, the participating countries’ participation fees and annual insurance premiums), and international reinsurance capacity. Achieving the optimum balance between reserves and reinsurance is necessary both to ensure the Facility’s financial strength and to allow the participating countries to access catastrophe insurance at the lowest possible cost. 55. Extensive communication with participants is required not only leading up to the facility’s inception, but also throughout its operations to ensure that its products are well understood. Catastrophe insurance is a new tool for many Caribbean island countries, and thus requires extensive capacity building. Aggressive, targeted and continuous communications are required to explain the instrument and what it does and does not cover. Communications need to reach beyond the decision-makers to the general public. It is important for the public to understand that even though a disaster may result in personal losses, it may not meet the policy’s parameters for triggering a payout and, further, that when a payout is triggered it is made to the government for general liquidity purposes and not to indemnify individuals for their losses. In addition to Quarterly and Annual Reports and an informative website, proactive press outreach is important to supplement information provided directly to decision-makers. Technical assistance activities and workshops for persons from the participating countries can also build understanding, as can partnering with other regional organizations. 16 56. Catastrophe risk financing programs can help bridge the gap among Ministries of Finance and agencies involved in disaster risk management . Risk modeling tools to assess financial exposure to natural disasters can provide loss estimates in dollar terms that can help Ministries of Finance better understand and compare threats to their fiscal balance and sensitize them to the need for more pro-active disaster risk management strategies. The analytical process can help increase interaction between Ministries of Finance, national emergency management agencies, and hydrological and meteorological institutes. 57. Even with insurance coverage, countries must continue to invest in risk reduction measures. An important message to convey in stakeholder and public communications is that catastrophe insurance is not and should not be consider