Catastrophe protection gap hit 64% in 2020, $171bn goes uninsured: Aon

FULL ORIGINAL PUBLICATION HERE. AON’S FULL CATASTROPHE REPORT HERE.

The global catastrophe protection gap reached 64% in 2020 as roughly $171 billion of natural catastrophe and severe weather losses were not covered by insurance and reinsurance, one of the largest brokers Aon has said.

Aon’s latest annual catastrophe report highlights climate influences on a significant number of impactful events in 2020 and the brokers’ CEO Greg Case calls for organisations to ensure they are protected against the global risk of concurrent events.

Aon’s report includes 416 natural catastrophe and severe weather events from 2020, which the broker estimates drove economic losses of US $268 billion, some 8% above the average annual losses for this century.

Tre Hapa për të Ndihmuar Shqipërinë për të Përballuar Ndikimet Financiare të Shkaktuara nga Fatkeqësitë dhe Krizat

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Në vitin 2019, Shqipëria u përball me një seri tërmetesh, ndër të cilët edhe një me magnitudë të lartë; më pas, mes përpjekjeve për rindërtim në vitin 2020, u godit edhe nga pandemia COVID-19. E përballur me nevojat e shumta në rritje, mbështetja e qeverisë shqiptare shkoi për të varfërit dhe personat e prekur nga fatkeqësitë dhe krizat, përfshirë këtu edhe bizneset. Për ta realizuar këtë, ajo shfrytëzoi rezervat fiskale, rishpërndau buxhetet për përparësitë urgjente dhe u mbështet tek ndihma e jashtme. Shumë nga këto masa u ndërmorën në bazë të nevojës.

Në shtator 2020, Banka Botërore së bashku me Ministrinë e Financave dhe Ekonomisë,  kreu vlerësimin diagnostikues në lidhje me financimin e riskut të fatkeqësive në Shqipëri.[1] Kjo përpjekje kishte për qëllim identifikimin e mangësive të financimit të mekanizmave për gatishmërinë financiare të vendit në rast fatkeqësish dhe rekomandimin e mënyrave për përmirësimin e tyre.

Menaxhimi i riskut të fatkeqësive është ndër përparësitë kryesore të politikave në Republikën e Shqipërisë dhe, pak kohë para tërmetit, qeveria shqiptare kreu edhe një seri reformash në këtë drejtim, si për shembull: miratimi i Ligjit të ri për Mbrojtjen Civile, racionalizimi i kornizave institucionale, decentralizimi i funksioneve që aktivizohen pas fatkeqësive dhe vënia në dispozicion e strukturave të nevojshme për fondet e emergjencës në nivel vendor dhe në nivel ministrie të linjës.

Three Steps to Help Albania Withstand the Financial Impacts of Disasters and Crises

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In 2019, Albania experienced a series of earthquakes, including a major one; then, amid reconstruction efforts in 2020, it was hit by the COVID-19 pandemic. Confronting multiple increasing needs, the government of Albania supported the poor and those affected by disasters and crises, including businesses. To do so, it tapped into its fiscal reserves, reallocated budgets toward urgent priorities, and relied on external assistance. Many of these measures were ad hoc.

In September 2020, jointly with Albania’s Ministry of Finance and Economy, the World Bank completed a diagnostic of disaster risk finance in Albania[1]. This effort sought to identify financing gaps in—and recommend ways to improve—the country’s financial preparedness for disasters.

Disaster risk management is among Albania’s key policy priorities, and the Albanian government carried out a series of reforms shortly before the earthquake: for instance, it enacted a new Law on Civil Protection, streamlined institutional frameworks, decentralized post-disaster functions, and put in place structures for contingency funds at the local and line ministry level.

Can insurance-linked securities mobilize investment in climate adaptation?

ORIGINAL PUBLICATION HERE

The cost of adapting to climate change increases every year. Between now and 2030, adaptation in developing countries is projected to cost US$180 billion annually and skyrockets to US$280-500 billion as we get closer to 2050. The past five years are among the warmest ever recorded and the economic impacts from tropical storms, droughts and wildfires are reaching record levels around the world. Despite the need to improve our resilience, investments in early warning systems, climate resilient infrastructure, improved agriculture, natural capital such as mangroves and coral reefs, and water resource management, have remained stagnant. Adaptation finance still represents a fraction of overall climate finance and less than 20 percent of what is needed, even if absolute numbers are slowly rising US$22 to US$35 billion from 2016 to 2018).

But closing the gap between current adaptation financing levels and the need is a challenge. Public sector budgets are maxed out and attracting desperately needed private investment remains notoriously elusive. The challenge to mobilizing private investment into adaptation and resilience projects has always been–how do we get our money back? While we’ve been debating adaptation’s return on investment, the damages from intensifying hurricanes, wildfires, and droughts as a result of the climate crisis have cost hundreds of billions of dollars and displaced millions of people.

Climate risk protection gaps need capital market (ILS) solutions

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The physical climate risk protection gap, so the gulf between climate related losses covered by insurance, reinsurance or risk transfer and those going uncovered, is widening, but instruments such as insurance-linked securities (ILS), catastrophe bonds and other blended financing solutions can help to narrow this gap.

In real estate the climate risk protection gap is particularly stark and financing tools are needed urgently to help absorbing some of the climate exposure that is uncovered at the moment, Fitch Ratings explained in a recent report.

The rating agency looked at the need for risk transfer and risk financing instruments that can help in the global response to longer-term climate related exposures, explaining that there are a patchwork of insurance and reinsurance related solutions, but that in insurance-linked securities (ILS) we perhaps get a glimpse of emerging financial products that could, in future, make a significant difference.

How to close Asia’s insurance protection gap

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Asia will drive the growth of the global insurance market in the years to come. Technological innovation along with solid financing and the right policies will be needed to make sure as many people as possible in the region get the insurance protection they need.

The demand for insurance in Asia in the coming decade will be shaped by rising household income levels of a rapidly expanding middle-class, policy measures to accelerate financial inclusion, and strengthening social protection and government insurance programs.

Governments are also increasingly making businesses, households, and individuals responsible for managing the adverse financial consequences of risks to assets, lives, incomes, and livelihoods.  One can, therefore, expect increased spending on buying protection and an expanding role for the insurance and capital markets to manage contingent liabilities better. The same holds for access to medical care, which will be spurring demand for health insurance.

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Interview to Investing in Private Markets, Europe 2020 Report: “Growth potential and resilience of ILS as an alternative capital”

PDF VERSION AVAILABLE HERE. FULL REPORT CAN BE DOWLOADED FOR FREE HERE.

Investing in private markets remains a prevalent strategy for institutional asset owners, and one that has demonstrated resilience even through the duration of the first quarter of this year as the Covid-19 pandemic spread across the globe. This is not to say private markets investment has been without issue, in the early months of the pandemic investing capital proved problematic in part because businesses were under financial pressure, and in part that funds were unable to access financing.

This report brings together UK and Wider Europe based Investment Actuaries, Heads of Insurance Asset Management, Investment Managers, Head of Investments and Senior Specialist. We explore regulatory improvements, investigate the due diligence that investing in private markets requires, dissect the information disadvantage, evaluate diversification as a key benefit, discuss the supply and demand imbalance, and address the increased role of climate positive and infrastructure related investments.

The BRI and the need for its transit infrastructure protection against natural disasters

ORIGINAL PUBLICATION HERE

Countries in Central Asia and Eastern Europe that have been recipients of Chinese investment via projects associated with its Belt and Road Initiative (BRI) should use parametric sovereign cat bonds to insure themselves against the risk of natural disasters.

Belt and Road Initiative has created an even greater need for comprehensive protection solutions across Central Asia and Eastern Europe as China has spent tens of billions of dollars in infrastructure across the region but practically none of it is properly insured against physical damage, despite the region being at high risk of natural disasters with earthquakes in particular.

In countries such as Uzbekistan, Kazakhstan or Tajikistan it is not a question of if an earthquake will hit, but when—and how devastating it will be. In Western Balkans that is prone to earthquakes itself there is an additional threat of massive floods as climate change consequences.

La BRI et la protection des infrastructures contre les désastres naturels

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Les pays d’Asie centrale et d’Europe de l’Est qui reçoivent des investissements chinois dans le cadre de l’initiative « Belt and Road » (BRI) pourraient être intéressés par l’utilisation d’obligations souveraines paramétriques pour se prémunir contre les risques de catastrophes naturelles.

L’initiative « Belt and Road » a créé un besoin important de solutions de protection complète en Asie centrale et en Europe de l’Est, car la Chine a investi des dizaines de milliards de dollars en infrastructures dans ces régions, mais la plupart de ces projets ne sont pas correctement assurés contre de possibles dommages, bien que  ces régions présentent des risques de catastrophes naturelles en particulier des tremblements de terre.

Dans des pays comme l’Ouzbékistan, le Kazakhstan ou le Tadjikistan, il ne s’agit pas de savoir si un tremblement de terre va se produire, mais quand et à quelle intensité il se produira. Les Balkans occidentaux qui sont eux-mêmes sujets aux tremblements de terre, sont aussi sous la menace d’inondations massives en raison du changement climatique.

ILS tells a compelling ESG story: Carey Olsen

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Amid the ongoing expansion of the market for sustainable investment, there’s an opportunity for the insurance-linked securities (ILS) sector to show its alignment with environmental, social and governance (ESG) factors, according to law firm Carey Olsen.

Intensified by the wide-ranging effects of the ongoing Covid-19 pandemic, heightened awareness of the complex ESG challenges currently faced by society has accelerated the need for global businesses to demonstrate a commitment to sustainability, in terms of both individual business practices and external investment policies.

Against this backdrop, Artemis recently spoke with Gavin Woods, Partner, and Sheba Raza, Counsel, at offshore business focused law firm, Carey Olsen, about the increased focus on sustainability in what’s been a challenging and transformative year.