The Pacific Island nation of Tonga is to receive a $4.5 million payout from its parametric disaster insurance policy with the Pacific Catastrophe Risk Insurance Company (PCRIC), the largest payout to date from the regional catastrophe insurance facility.
The Pacific Catastrophe Risk Insurance Company (PCRIC) is a regional catastrophe insurance platform that provides governments of Pacific Islands with parametric climate and seismic cover, focused on cyclones and earthquake risks.
The PCRIC facility is backed by reinsurance capital from the traditional markets right now and is currently of relatively small size, but the ambition is to grow this and its usefulness, following a similar model to the Caribbean CCRIF.
PCRIC policies, being parametric in nature and trigger, are designed to payout quickly and provide immediate financing to assist in disaster relief, recovery and rebuilding.
Balwyn Fa’otusia, CEO for the Tonga Ministry of Finance and representative of the Government of Tonga commented, “These funds will enhance our ability to respond to the needs of our communities impacted by Cyclone Harold and already dealing with the impacts of the COVID-19 global pandemic. In these challenging times the value of these products has been shown in supporting our wider strategy to financing natural disaster responses”
Cyclone Harold reached Tonga as a Category 5 cyclone and caused widespread destruction across the island and region. The cyclone passed within 100km of Tongatapu, Tonga’s main island, causing a significant storm surge that struck at the same time as king tides, with wide spread damage seen along the coastline.
“Our thoughts and prayers go out to the affected communities across the Pacific,” commented PCRIC Interim Chairman, Sarah-Jane Wild.
“Despite the challenging circumstances that the dual impacts of COVID-19 and Cyclone Harold presented, we are proud to be able to assist the Tongan government with much needed financing, which will provide immediate support to help meet the needs of their communities.
“This event has reinforced the value of a comprehensive and diversified disaster risk financing approach in the region, and we believe that PCRIC stands as an important option in ensuring governments can access liquidity quickly to finance rehabilitation and recovery efforts. It is clear that the level of coverage provided to Pacific Island countries through the support of PCRIC by our donor partners and reinsurance panel continues to have a positive impact in the Pacific Island region.
“We would like to acknowledge the contributions made by the governments of Germany, Japan, the United Kingdom, the United States of America and Canada, along with the support of our reinsurance partners AXA XL, Descartes Underwriting (Generali Security), Liberty Mutual Reinsurance and Mitsui Sumitomo Insurance who stand behind us in providing coverage to the region.”
PCRIC will seek to increase its usefulness as a regional provider of disaster risk insurance, with plans to expand to cover other perils on a parametric basis, including drought and excess rainfall.
“We also value the close working relationship we have with the World Bank who administers the PCRAFI multi-donor trust fund that has been instrumental in supporting PCRIC through its establishment, and look forward to strengthening this relationship along with wider relationships with other key international organizations and in particular PIC governments to ensure we continue to refine our products and services to better respond to the insurance needs of the region,” Wild said.
As ever, it is only through access to reinsurance that such facilities are possible and for the moment this seems traditionally backed.
But, in future as the parametric risk pool of the Pacific Catastrophe Risk Insurance Company (PCRIC) expands, it could call on the capital markets as a source of diversifying and efficient reinsurance capital as well, ultimately to the benefit of the islands it provides coverage to.