1 CONFIDENTIAL ©2016 AIR WORLDWIDE Using Climate Data and New Analytics to Inform Private Decisions in Climate Resilience Brent Poliquin, CCM May 27, 2016

2 CONFIDENTIAL ©2016 AIR WORLDWIDE In order to become more resilient to a particular risk, you first need to understand the risk.

3 CONFIDENTIAL ©2016 AIR WORLDWIDE How frequent are these types of events? How severe can they be? Where can they happen? Where are we most exposed? How do we respond to a catastrophe? How do we become more resilient? How do we understand the risk?

4 CONFIDENTIAL ©2016 AIR WORLDWIDE Catastrophe models are computer programs that mathematically represent the physical characteristics of catastrophic events. What is a catastrophe model?

5 CONFIDENTIAL ©2016 AIR WORLDWIDE How do you model a catastrophe? HAZARD ENGINEERING FINANCIAL Intensity Calculation Exposure Information Damage Estimation Event Generation Policy Conditions Loss Calculations

6 CONFIDENTIAL ©2016 AIR WORLDWIDE Exposure Dashboard What does a catastrophe model look like?

7 CONFIDENTIAL ©2016 AIR WORLDWIDE Modeled Loss Dashboard What does a catastrophe model look like?

8 CONFIDENTIAL ©2016 AIR WORLDWIDE Case Study: FONDEN Mexico’s Fund for Natural Disasters

9 CONFIDENTIAL ©2016 AIR WORLDWIDE Motivation: Efficient access to capital for emergency relief after disaster strikes Perils Covered: Tropical Cyclone Earthquake Regions Covered: Baja Peninsula Tamaulipas and Yucatán Peninsula Greater Mexico City Risk Transfer Details

10 CONFIDENTIAL ©2016 AIR WORLDWIDE What is “Basis Risk”? Basis risk is the difference between the losses you wish to protect against and the recoveries from the transaction Minimizing basis risk helps ensure you will receive a recovery when you really need it (and only then) Catastrophe models can optimize your structure to maximize the fit between your loss potential and the transaction’s recoveries

11 CONFIDENTIAL ©2016 AIR WORLDWIDE Risk Transfer Structure: Three catastrophe bond classes of notes One for each region/peril Trigger Mechanism: Exceed event parameter threshold within defined area Duration: Three years Maximum Recovery: $315,000,000 (USD) in total for three classes of notes Annual Interest Spread(s): 7.50% to 8.00% Risk Transfer Solution

12 CONFIDENTIAL ©2016 AIR WORLDWIDE FONDEN’s Risk Transfer Strategy Probability of Trigger = 2.73%Probability of Trigger = 5.69%

13 CONFIDENTIAL ©2016 AIR WORLDWIDE Hurricane Odile: No Payout

14 CONFIDENTIAL ©2016 AIR WORLDWIDE Hurricane Patricia: 50% Payout

15 CONFIDENTIAL ©2016 AIR WORLDWIDE High quality climate data is critical when developing a robust climate resilience strategy Catastrophe models are proven tools to help understand and quantify exposure to catastrophe risk Climate data and catastrophe models both aid the development of disaster risk financing solutions Key Takeaways