AF to the Second Central America and Caribbean Catastrophe Risk Insurance Project

closed

The proposed Additional Financing aims to scale up the Project's impact by allocating additional funds to existing components under the Project, supporting Central America and Caribbean countries’ efforts to improve their financial resilience to manage disasters caused by natural hazards and climate-related events, considering the current limited financial context and the need for additional risk insurance products. This Project aims to support the continued expansion of the Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company (CCRIF SPC) membership to Central American countries and the scaling up of activities in the Caribbean, increasing the ability of governments to reduce the negative impacts of natural hazards on their economies and societies. Its purpose is to increase member coverage, expand membership, and continue to offer affordable and innovative catastrophe risk insurance products to countries. In parallel, through the provision of technical assistance, the World Bank will continue to support the development and implementation of countries’ disaster risk financing strategies to ensure the right combination of instruments to respond to natural hazards.The Project Development Objective (PDO) will be achieved by facilitating: (i) access of the “-Council of Ministers of Finance of Central America, Panama, and the Dominican Republic-COSEFIN, for its acronym in Spanish” countries to lower premium rates than the simulated price for a comparable Earthquake Risk Insurance and Climate Risk Insurance purchased individually in the market, (ii) access of the “Caribbean Community countries, CARICOM and selected Overseas Countries and Territories (OCT), to lower premium rates than the simulated price for a comparable Climate Risk Insurance purchased individually in the market, and (iii) quick access to the liquidity of participating countries with catastrophe risk coverage after the occurrence of an event which triggers an eligible loss by receiving payment within a month of the event.This operation builds on the experience and lessons learned from the First Central America and Caribbean Catastrophe Risk Insurance Project (P149670) and the Additional Financing (P163312), which have successfully achieved the purpose of providing immediate liquidity for emergency response and recovery to CCRIF SPC member countries through a range of affordable and innovative insurance products, thereby better preparing them to absorb the fiscal shocks caused by disasters from natural hazards.The proposed Additional Financing finances three Components: (i) parametric insurance associated with risks related to geophysical events for participating Council of Ministers of Finance of Central America, Panama, and the Dominican Republic (COSEFIN) countries; (ii) parametric climate risk insurance for participating COSEFIN countries; and (iii) parametric climate risk insurance for participating Caribbean Community countries. The proposed project will support the World Bank Group’s dual goals of ending extreme poverty and promoting shared prosperity. In providing affordable and high-quality catastrophe risk coverage, the Caribbean and COSEFIN countries will be better able to achieve a key priority of managing macroeconomic shocks and budget volatility arising from natural hazards. Mitigating such impacts will enable governments to continue services in the aftermath of a disaster as well as to prevent increased public debt levels from being transferred onto future generations. The Project is also consistent with the individual Country Partnership Strategies (CPS) for Central American and Caribbean countries, in which the World Bank Group commits to strengthening the governments’ capacities to utilize financial instruments to protect against the adverse fiscal impacts of catastrophic events.The total estimated amount of the proposed AF is US$20 million. The financing will come from the following sources: US$10 million from the Central America and Caribbean Catastrophe Risk Insurance Program Multi-Donor Trust Fund (MDTF) managed by the World Bank; US$5.36 million (est. US$ equivalent of EUR5.2 million) from the Caribbean Regional Resilience Building Facility (CRRBF), managed by the GFDRR, and US$4.64 million (est.US$ equivalent of EUR4.5 million) from a newly established Single Donor Trust Fund (SDTF), managed by the World Bank. As of November 2022, the full amount appraised under the AF is not available. There is a financing gap of US$4.64 million from a newly established SDTF. The financing source for the gap is the EU, however, the Bank and the EU are still processing this contribution to be passed onto Recipient, which is to be allocated to the SDTF. The establishment of the new SDTF is in the process after which it will become available to the Recipient (CCRIF SPC), before the end of June 2023 at the latest.