Sovereign financial disaster risk management: The case of Mexico

Cárdenas, Víctor; Hochrainer, Stefan; Mechler, Reinhard; Pflug, Georg Ch.; Linnerooth-Bayer, J.

doi:10.1016/j.envhaz.2007.04.005

Cited by 68 publications

(55 citation statements)

References 6 publications

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“…It was also recently proposed that the U.S. National Flood Insurance Program consider such instruments to reduce its exposure to catastrophic floods (Michel-Kerjan, 2010d). 7 Mexico's first cat bond (CatMex) was issued for only earthquake coverage in 2006 as part of a $450 million reinsurance program (the cat bond was for $160 million); see Cárdenas et al (2007) and Hardle and Cabrera (2010).…”

Section: Focus and Outline Of The Report: Protecting Public Financementioning

confidence: 99%

Catastrophe Financing for Governments

Michel-Kerjan

Zelenko

Cárdenas³

et al. 2011

OECD Working Papers on Finance, Insurance and Private Pensions

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---With rapidly increasing population and growing catastrophe exposure in their countries, many more government leaders (including Presidents, Prime Ministers and heads of Kingdoms) are now faced with this strategic question: how best develop a national strategy to hedge against the massive economic burden of extreme events that could hit their country tomorrow?We propose a framework to help those leaders in governments around the world and their advisors think more clearly about these issues, focusing specifically on the role that risk transfer mechanisms alternative to traditional insurance can play. The report provides a case study of the $290 million multi-peril, multi-tranche catastrophe bond recently sponsored by the Government of Mexico and arranged by the World Bank under the MultiCat Program. We discuss the step-bystep creation of this catastrophe bond, from starting discussions that took place in 2008 to the investor road show and the successful issuance of the bond in October 2009. This joint initiative could provide an example for other countries that wish to establish their own financial coverage solution against disasters, as part of a broader national risk management strategy. We illustrate this with the case of the government of Chile and earthquake risks. It also shows that considering countries, or even cities, for the issuance of such insurancelinked securities (ILS) could considerably expand this market for alternative catastrophe risk transfer instruments.

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Section: Focus and Outline Of The Report: Protecting Public Financementioning

confidence: 99%

Catastrophe Financing for Governments

Michel-Kerjan

Zelenko

Cárdenas³

et al. 2011

OECD Working Papers on Finance, Insurance and Private Pensions

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“…Nicht nur die Intensität des Ereignisses, sondern auch die sozioökonomische Situation, auf die das Naturereignis trifft, sind wichtig, um beurteilen zu können, ob das Ereignis kurz-oder langfristige negative Folgen haben wird und welche Maßnahmen am effektivsten erscheinen, um diese zu verhindern oder zu verringern (Benson und Clay 2000, 2004. Finanzielle Risikotransfermaßnahmen auf nationaler Ebene gegen Extremereignisse, wie etwa Excess-of-Loss-Versicherungen, kontingente Kredite, Katastrophenanleihen, sowie Reservefonds gehören hier zu den prominentesten Vertretern (Mechler 2004, Cardenas et al 2007, World Bank 2007.…”

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Reservefonds gegen Naturkatastrophen auf nationaler und europäischer Ebene

Hochrainer¹

2008

VJH

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Summary: Catastrophe reserve funds are used to cover the potential costs of a disaster by capital accumulation. Based on examples in Europe, especially the national disaster fund in Austria and the European Solidarity Fund, the advantages and disadvantages of such a risk management instrument are shown and possible solutions are proposed. The main criticism is the non-risk based approach of these instruments. Methodologies how one can incorporate direct as well as indirect losses within a probability based approach are presented. Terms of use: Documents in Einleitung 1

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“…Humanitarian assistance reported by the Organization for Economic Cooperation and Development (OECD) Development Aid Committee in the 1990s was less than 10 percent of disaster losses in recipient countries (Freeman et al 2002). Post-disaster arrangements not only are oft en insuffi cient for meeting needs for relief and reconstruction, but also tend to be ad hoc and ineffi cient (Cardenas et al 2007). …”

Section: Disaster Risk Copingmentioning

confidence: 99%

“…Th is message became clear to the Mexican authorities aft er experiencing the 1985 earthquake in Mexico City. Colossal expenses on rehabilitation and reconstruction resulted in an increase in the fi scal defi cit of US$1.9 billion over the next 4 years (Cardenas et al 2007). In 1996, the authorities created a fi nancial risk management program (FONDEN) including a catastrophe reserve fund.…”

Section: Insuring Governmentsmentioning

confidence: 99%

“…Specifi cally, expenses amounted to about 2 percent of the coverage, which is far greater than traditional reinsurance, which normally approximates 1 percent (Lane 2004). Th e costs included payments to outside consultants for modeling risks, a myriad of legal fees, costs of the rating agency, and other administrative expenses (Cardenas et al 2007). While it is diffi cult to standardize the placement of catastrophe bonds in the fi nancial markets and thus reduce legal and other fees, the cost of estimating risks may be reduced by improving public domain data bases and developing internal capacity for risk assessments.…”

Section: Insuring Governmentsmentioning

confidence: 99%

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Insurance against Losses from Natural Disasters in Developing Countries

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Sovereign financial disaster risk management: The case of Mexico

Cited by 68 publications

References 6 publications

Catastrophe Financing for Governments

Catastrophe Financing for Governments

Reservefonds gegen Naturkatastrophen auf nationaler und europäischer Ebene

Insurance against Losses from Natural Disasters in Developing Countries

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