Reinsurer offers three-year parametric cover to state insurance fund
Swiss Re is to provide a three-year, parametric insurance policy to cover the Alabama State Insurance Fund’s primary catastrophic hurricane exposure.
Payment under parametric policies is triggered by an event’s characteristics rather than the insured’s loss. The policy issued to the Alabama SIF is linked to wind speed.
According to Swiss Re, this is the first time a US state government has used such a structure to transfer its natural catastrophe exposure to the private market.
"Until now, governments, and ultimately taxpayers, have been left shouldering the burden of paying for emergency expenses and reconstruction well after the disaster has passed,” said Swiss Re chief risk officer Raj Singh. “In other countries, we have worked successfully with government bodies to address this exposure. These innovative solutions are applicable to governments of all sizes and can be applied to US states who have an economic exposure to catastrophes - whether they be hurricanes, wildfires, or earthquakes among others.”
Ben Spillers, risk manager for the Alabama Department of Finance, added: “This transaction marks a milestone for the State of Alabama in identifying and managing key risks. Based simply on the wind speed of a hurricane, we can now receive funds rapidly to cover our immediate costs.”
In 2009, Swiss Re provided $290m of coverage to the Mexican government to help it cope with the aftermath of hurricanes and earthquakes. The firm is also the lead reinsurer of the Caribbean Catastrophe Risk Insurance Facility.