The Caribbean Catastrophe Risk Insurance Facility (CCRIF) has dropped pre-mium rates by 10 per cent, but none of its 16 policyholders have taken up that offer.

Instead, governments of the region have opted for higher insurance coverage.

"All countries opted to upgrade coverage instead of paying the 10 per cent reduction," said Marsha Smith, head of communications for CCRIF.

Premiums were similarly cut by 10 per cent in 2008.

Smith declined comment on the applicable premium rates, saying it was not CCRIF's place to disclose such payments.

Jamaica, however, has $439 million budgeted to meet its obligations to CCRIF this fiscal year, a 52.6 per cent increase on the $287.58 million in the previous budget. The equivalent in foreign currency terms is about US$4.9 million, compared to about US$3.6 million last year.

Jamaica has at the same time bought US$107.5 million (approxi-mately $9.6 billion) of coverage - split US$57.5 million for hurricanes and US$50 million for earthquakes.

Fund-based decision

Last year, the island had coverage of US$95.9 million for both earthquake and hurricane.

The new insurance premiums took effect June 1 at the policy anniversary. CCRIF is entering its third year.

The decision to lower premiums across the board "was based on the amount of money in the fund," said Marsha Smith, spokesperson for CCRIF.

The income earned on investment was "transferred to member governments," Smith said.

CCRIF's 16 policyholders include 12 full members of Caricom and four associate members.

Six of the 16 countries got help from the Caribbean Development Bank to pay this year's premiums, but Smith declined to name them.

The insurance fund had, however, previously disclosed that St Lucia was one of several.

Under the insurance facility, members can access up to US$100 million worth of coverage per peril.

Last year, the CCRIF paid out approximately US$6.3 million to the Turks and Caicos Islands in the wake of Hurricane Ike, and US$1 million the year before to Dominica and St Lucia for earthquake damage.

Expectations of fewer storms

Caribbean Risk Managers Limited (CaribRM), facility supervisor of CCRIF, this year has predicted a less active hurricane season than 2008's, which produced 16 named storms, eight of which were hurricane strength and five major hurricanes of Category Three or greater.

But Smith said the premiums were not adjusted because of expectations of fewer storms, adding that risk is not assessed according to seasonal predictions.

Kinetic Analysis Corporation (KAC), a partner to CaribRM in forecasting hurricane risk, estimates that there is a 14 per cent to 16 per cent probability that Jamaica may experience damage exceeding US$1 million (J$89m) due to hurricanes within the months of August and September, respectively.

These, however, represent higher-than-average probability with historical data showing about a nine per cent probability of such losses for the same months.

Remaining donor funds

"We have reinsurance up to a 1,000-year return period, with our US$20-million retention at the bottom more than covered by the remaining donor funds," said Smith.

CCRIF leverages its claims-paying capacity through the purchase of reinsurance. Added capacity comes from a separate capital market transaction with the World Bank Treasury.

This year, the panel of reinsurers has expanded to include Partner Re - joining Munich Re, Swiss Re, Paris Re and Hiscox.

At last policy renewal, CCRIF's risk financing stood at US$145 million, of which reinsurance was valued at US$132.5 million.

"The CCRIF's funds are conservatively invested in relatively liquid assets. In this way we've made constant investment gains, while ensuring that funds are available for payout whenever necessary," Smith said.

CCRIF is a regional insurance fund developed by the World Bank for Caribbean governments designed as a fiscal cushion to limit the financial impact of catastrophic hurricanes and earthquakes.

CCRIF is now assessing the viability of expanding the risks it covers to the agricultural sector, on which a feasibility study is under way.

The facility is also in the process of developing coverage for rainfall losses, with roll-out targeted tentatively for the coming autumn months, but is more likely to be ready by the start of 2010.

"While we know that our clients are keen to see the rainfall coverage become a reality, it is a complex technical problem to build an adequate historical rainfall database and develop a real-time rain measurement system that is suitable to underpin a parametric policy," said Smith.

"We are fully engaging regional expertise in this challenge and we hope that the necessary technical work now will ensure a sound basis for offering our clients the most cost-effective solution."

If the product is rolled out by fall, it would be limited, Smith said, to a set of "test" countries.

sabrina.gordon@gleanerjm.com

New rainfall insurance product coming

CCRIF policyholders

Anguilla

Antigua and Barbuda

Bahamas

Barbados

Belize

Bermuda

Cayman Islands

Dominica

Grenada

Haiti

Jamaica

St Kitts and Nevis

St Lucia

St Vincent

Trinidad and Tobago

Turks and Caicos Islands