Dominican Republic parametric catastrophe insurance facility nearing launch

by Artemis on May 19, 2011

The Inter-American Development Bank (IDB) and reinsurer Swiss Re have been working on a natural disaster insurance facility for the Dominican Republic for over a year (our previous coverage on this facility). Now, the project is getting nearer to launch and has passed another milestone as the IDB have provided the Dominican Republic with a $24m loan to support the costs and premiums associated with setting up the insurance facility.

The approval of the loan could be the final step in getting the facility up and running for the Dominican Republic. They had always been aiming to have the multi-year catastrophe insurance cover in place prior to the start of the Atlantic hurricane season and they may just make that deadline now the loan is secured.

The insurance cover that the facility is designed to provide will be structured as a parametric insurance policy and the majority of the underlying risks will be transferred to the capital markets, according to the IDB press release from yesterday. When we last wrote about this topic the decision had not been taken whether to utilise reinsurance or a catastrophe bond for this risk transfer and we’re still no clearer on that.

The policy will provide the Dominican Republic with up to $50m of cover per event for the purpose of insuring against public expenditure costs incurred after natural disasters. The insurance will provide cover for both earthquakes and tropical cyclones, triggered on a parametric basis and is designed to run for an initial period of five years.

The loan secured from the IDB will pay the premium for the first five years allowing the Dominican Republic to benefit from the cover without an initial outlay.

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