The Philippines has successfully placed on the international market its parametric insurance policy with a maximum cover of P20.49 billion that can provide quick liquidity to national and local governments. The program includes coverage for national and local government assets against natural calamities including public elementary and high schools in 25 disaster-prone provinces in the country’s eastern seaboard, the Bureau of the Treasury (BTr) said.
In her report to Finance Secretary Carlos Dominguez III, National Treasurer Rosalia de Leon said the Parametric Insurance Policy, which will enable these 25 catastrophe-vulnerable provinces and the national government to act faster and respond better against natural calamities, will become effective starting Dec. 19, 2018 midnight.
De Leon said that in addition to the reinsurers in 2017, which include Nephila, Munich Re, Swiss Re, AXA and Hannover Re, a new set of reinsurers also provided support for the cover. They are Hiscox Re, Allianz Re Switzerland, AP3 (Tredje AP-fonden), and SCOR.
“With the increased market participation, we were able to achieve a tighter multiple this year compared to last year’s transaction,” De Leon said in her report to Dominguez.
De Leon, said this positive development “augurs well for our forthcoming indemnity and catastrophe bond issue.”
With assistance from the World Bank, the insurance program covers 25 provinces along the Eastern Seabaord namely, Albay, Aurora, Batanes, Cagayan, Camarines Norte, Camarines Sur, Catanduanes, Cebu, Davao del Sur, Davao Oriental, Dinagat Islands, Eastern Samar, Ilocos Norte, Ilocos Sur, Isabela, Laguna, Leyte, Northern Samar, Pampanga, Quezon, Rizal, Sorsogon, Surigao del Norte, Surigao del Sur, and Zambales.
The premium for the program was allocated under the National Disaster Risk Reduction and Management Fund of the 2018 General Appropriations Act in the amount of P2 billion.
Under this program, the Government Service Insurance System (GSIS) provides catastrophe risk-insurance coverage particularly for the Department of Education along with the 25 selected provinces.
The World Bank, through its International Bank for Reconstruction and Development, acts as the intermediary to transfer or cede GSIS risks to the global reinsurance market, thus minimizing risks for the government. Its Disaster Risk Financing and Insurance Program provided preparation work with financial support from the UK-DFID.
In turn, the BTr is the designated policyholder, representing the 25 provinces and the national government.
Finance Assistant Secretary Paola Alvarez has said during the early stages of the program that unlike the traditional indemnity insurance that takes a long time to assess and process, this program will have quick-disbursing payouts whose amounts will depend on the estimated loss triggers determined through the Philippines’ Catastrophic Risk Model developed by the DOF in 2014 as well as damage reports from the ground.
“Since the Bureau of Treasury is the policyholder, the funds will be mobilized faster to the first responders, namely, the national government and the LGUs,” Alvarez has said.
In addition to the Parametric Insurance Program, the Department of Finance (DOF) is exploring a plan to sponsor a Catastrophe Bond (Cat Bond) to help bridge the financing gap the Government faces in the light of natural disasters.
Depending on the insurance coverage and its trigger, the Philippines as sponsor of the Cat Bonds will get paid the principal contributed by investors if a catastrophe occurs. But if there is no trigger, then investors would make a positive return on their investment in the bonds.
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