Baku, June 20, 2013

Europa Re Value PropositionA brief outline

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Riccardo CiccozziAccreditation & Representation Specialist

Agenda

Context

– SEE Exposure to Natural Disasters– Natural Disasters’ impact in SEE– Catastrophe Insurance Markets

Project

– Vision and Market Value preposition– Key services– Main Steps

Challenges ahead

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Major Natural Disasters in South East Europe

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Source: Mitigating the Adverse Financial Effects of Natural Hazards on the Economies of South Eastern EuropeA Study of Disaster Risk Financing OptionsSouth Eastern Europe Disaster Risk Mitigation and Adaptation Programme - Eugene N. Gurenko Wael ZakoutThe World Bank, Sustainable Development Department Europe and Central Asia Region and UN/ISDR secretariat Europe February 2008

SEE High Exposure to Natural Disasters

South East Europe (SEE) is highly vulnerable to natural disasters.

– In the past thirty years, economic losses in excess of $70 billion were reported.

– A major earthquake in Turkey in 1999 caused more than 17,000 deaths and economic damages estimated at 5% of GDP.

– Floods in Central and South East Europe alone in 2002 and 2005 caused economic losses of $15 billion and $2.5 billion, respectively, leaving over 25,000 people homeless.

– In ten of the twenty-eight countries in the region, up to 4 million people are exposed to severe natural catastrophic perils, while up to 32 million (or 7% of the region’s population) can be affected by natural disasters.

Climate Change is expected to worsen the region’s exposure

– Due to the growing volatility of climate, smaller but more frequent events are also becoming a major reason for concern.

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Disaster Risk Reduction & Disaster Risk Financing

Disaster Risk Financing reduces the opportunity cost of disasters (cost of securing funds to sustain a natural disaster)

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Disaster Risk Reduction reduces the expected disaster losses

Catastrophe Insurance Markets – Development Prospects

The growth potential of Cat Property Markets in SEE is therefore very high. For example:Turkey Market

– Turkish Catastrophe Insurance Pool (TCIP) established in 1999– Turkey cat insurance penetration at 25% of insurable stock

Romania Market– Romania Natural Disaster Insurance Pool (PAID) established in 2008– Romania cat insurance penetration at 60% of insurable stock

Success can be achieved through combined efforts of the public and private sectors:

– Support by adequate government policy– Regulatory reform– Consumers’ education– Reliable claims performance– Commercial connection between flood / quake coverage and mortgage loans

This was achieved in Central Europe:– Poland – Cat Insurance Penetration at 55%– Slovakia - Cat Insurance Penetration at 58%– Czech Republic - Cat Insurance Penetration at over 60%– Hungary - Cat Insurance Penetration at over 70% 6

Catastrophe Property Risk Insurance Pools – Examples

Regional (sovereign) catastrophe risk insurance pools – Caribbean Catastrophe Risk Insurance Facility – Pacific Disaster Risk Insurance Program (under development)

National property catastrophe risk insurance pools – Turkish Catastrophe Insurance Pool – California Earthquake Authority – Taiwan Residential Earthquake Insurance Pool – Algeria Catastrophe Risk Insurance Pool – Romanian Natural Disaster Insurance Pool (PAID) – Consorcio de Compensación de Seguros (Spain)– CCR (France)

Etc.

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A variety of tools and approaches are possible

Issue Cat Bonds? Mandatory Insurance? Regional Spread or National Focus?

Nat Cat Risk Regional Exposure

Nat Cat Damage Impact

Private Insurance?

Europa Re Solution

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South East Europe (SEE) is highly vulnerable to natural disasters Climate Change is expected to worsen the region’s exposure

Adverse impacts on governments’ budgets

Socio-economic implications on households

Adverse economic effects on business

Very Low Cat Insurance Penetration

Lack of Risk Awareness

Market Growth Potential

Flood Heat Waves Drought Quake

Market Infrastructures to develop

Catastrophe and Weather Risk Insurance for

Households, SMEs and Farmers

Europa Re - Business Model – Vision & Mission

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A Swiss-based company owned by countries of Southeast Europe (SEE)

Supported by the World Bank, EU, UNISDR, SECO and GEF

Providing innovative technology-driven solutions to SEE insurers writing catastrophe and weather risk insurance products

Vision - Increase the level of catastrophe insurance penetration amongst households, small and medium enterprises (SMEs) and farmers in the SEE region

• Educating consumers• Improving and standardize credit quality of insurance products• Enabling insurers to sell weather and catastrophe risk insurance• Helping governments and insurance regulators

MissionEuropa Re Project

Key Services - Risk Management

Market Issue: lack of high-resolution and reliable catastrophe (cat) models for SEE cat exposures

ERe Solution: provide local insurers with state-of-the-art probabilistic cat modelling tools based on the latest technology offered by Market Leaders

Main Benefits: High-resolution Models available at a much lower cost

ERe’s Cat Models’ technology is underpinned by:

– AIR’s global research in catastrophe risk modelling– Country specific risk data– Unique business applications

ERe’s Risk management systems allow insurers to accurately evaluate:

– Potential losses resulting from catastrophe insured risks at any point in time;– Net retention capacity relative to available solvency. 10

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Real-time monitoring of disaster events and option to receive notifications Reports on disaster risk assessment of their properties/businessesIdentification of major structural vulnerabilities of their propertiesAdvice on possible risk reduction techniquesReferrals to insurance companies accredited under Europa Re programCommunity catastrophe risk assessment and management service

Key Services - CATMonitor

Key Services - What will Europa Re do for Consumers

Government As result:

- Consumers’ profit and assets are better protected

- Higher incentive to produce

Outcome

- Increased production

- Increased income

- Higher contribution to economy

Insurance companies

• Direct subsidies

• Insurance premium subsidies

• Basic Insurance protection

• Specialized Insurance protection

Europa Re

Expertise on improving the

subsidy scheme

New user friendly and affordable

products

Know how

Awareness

Education

Development of distribution channels

New Parametric Insurance Products

Improved market mechanism

Con

sum

ers

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Key Services - What can be expected from ERe products

Products

Simple

Affordable

Easily accessible

Reliable

Covering consumers’ production

needs

Innovative

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Earthquake and Flood insurance for homeowners

and SME’s

Weather insurance

products for agriculture

Other as explored to fit market needs

fast and simplified loss settlements

Remote Sensing & Cat Modelling Technologies

Europa Re Parametric products

1. Precipitation

2. Temperature

Main principle of parametric weather insurance: Coverage in case of unusual behavior of weather

excessiveprecipitation

drought(minimal rainfall)

high heat low heat freeze

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Example: Drought insurance

What triggers an insurance event?

when total amount of

precipitation for the period is below the minimum threshold

What types of thresholds?

1. minimum threshold for

period2. maximum threshold for

period(based on long

term average for period)

What precipitation values are accepted?

daily values of precipitation

measured officially by Authorized

National Weather Service

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Pre-event Post-EventEvent timeline

Geocoding at the time of underwriting

Pre-event Imagery

Exposure data

Protocols

• Claims submission• Assignment• Evaluation in-house or

send adjustors to review

• Phase 3 Claims settled

Phase148-72 hrs

• Imagery data collection • Remote Damage

Assessment • Phase1 Claims settled

Phase 21-2 weeks

• Effectively target adjustors and claims resources

• In-field damage assessment

• Phase 2 Claims settled

Phase 3within weeks

Claims Adjusting and Management

Financial Management

Before/After image comparison

Work Management Documents I Correspondence I

I Contacts I

Litigation Subrogation

Salvage

A new perspective for claimsEvent

Event Monitoring & immediate notification

Main Sequencing Steps

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Platform Testing

Compatibility and proper functioning of the systems

Europa Re Accreditation Sales Certificates

Europa Re Accreditation Claims Reporting Certificates

Europa Re New Products Launch

Education and Promotion

Challenges ahead

Government Involvement:

– To educate, regulate and incentivize

Consumers’ resistance:

– Lack of risk awareness / low trust in private insurance

Insurance Industry Resistance:

– What’s in it for me?

But,

Engage & Innovate Lessons from the Macedonian farmers

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New Legislation and regulations shall be issued in SEE to foster private cat insurance

Promotional activities shall target directly consumers in the region

Local Insurers to enter into formal cooperation with ERe

Thank you for your attention!Contact details:

info@europa-re.comwww.europa-re.com

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