SEEDRMAP conference Geneva, June 2009 SECE CRIF Efrem Radev RCC Senior Expert on Security Issues

Founding of the Regional Cooperation Council Launched in February 2008 as the successor to the Stability Pact, the RCC provides a new and regionally-owned framework for the countries of the SEE, the European Commission and the international donor community to undertake projects of mutual interest in order to foster further development of the SEE region.

Who We Are? The RCC is an inter-governmental framework which serves as the operational arm of the South Eastern Europe Cooperation Process (SEECP). The RCC has 45 members, including individual countries, international organizations and international financial institutions.

What We Do? Facilitating regional cooperation in South Eastern Europe Helping to accelerate reforms in the region Supporting commitments and endeavors with regard to European and Euro-Atlantic integration Encouraging the EU and international community to engage in the region; promoting donor involvement and coordination.

Agenda 1. What is SECE CRIF? 2. What will ensure the success? 3. Why RCC Supports SECE CRIF? 4. Regional versus National 5. WHY does the Initiative need Donor support?

What is SECE CRIF? South East and Central Europe Catastrophe Risk Insurance Facility

Main features of SECE CRIF What is SECE CRIF? Catastrophe reinsurance pool owned by SECE countries whose sole objective is to increase the number of homes and SMEs insured against natural disasters in the member states by the private insurance market. What perils will it cover? EQ and Flood Why would governments own a reinsurance company? To facilitate demand for private catastrophe insurance through proactive policies such as public information and awareness building campaigns, instilling confidence in consumers, etc.

Why cant the market do this on its own?

Wouldnt membership in CRIF be against the market competition Articles of the Stabilization and Association Agreement with EU? …to the extent this program (or state aid to this program) may: (i) object to, prevent, restrict or distort competition; A: CRIF will not prevent, restict or distort competition in the insurance market as private insurance companies will continue selling their existing catastrophe insurance products as before; participation in the program will be voluntary and pricing of the insurance products will be in line with the market. (ii) abuse its dominant position in the territories of the Community or SEE countries; A: There will be no abuse; CRIF will be a rather small venture compared to the main other reinsurance players in the market. (iii) distort or threatens to distort competition by favouring certain undertakings or certain products. A: Government contributions toward CRIF equity will be small and insignificant compared to the overall amount of risk capital required by the program - but even then the reinsurance premium charged by CRIF will account for the full cost of equity capital contributed by governments at the prevailing market rate.

What is the exit strategy for government shareholders? Government shareholders will be able to sell up to 30% of their shares in 3 years from the commencement of SECE CRIF operations and up to 100% within 5 years to private investors. Upon exit government shareholders will receive at least the full amount of their principal equity contribution plus accrued interest.

What will be the benefits for both clients and local insurers selling stand- alone catastrophe insurance policies? Homeowners in member countries will receive access to affordably priced reliable catastrophe insurance coverage, which will protect them from financial consequences of natural catastrophes. Domestic insurers participating in the program will receive (i) insurance commissions from sales of new insurance product; (ii) risk premium from partial risk retention; (iii) access to new clients; (iv) technical assistance in pricing, underwriting and risk management of catastrophe risk from the Facility; (v) access to competitively priced long-term reinsurance capacity.

What will ensure CRIF success?

Four arrows of success 1 Strong government commitment Start-up situation and a clear goal: Sound insurance regulations Strategic focus on increasing rates of cat coverage in participating countries –Increased rate of insurance coverage –Eventual privatization –Minimum cat coverage –Low demand Professional management 2 Good governance 3 4

Why RCC Supports SECE CRIF? The project is a clear cut example of regional cooperation It is one of the RCC priority projects A model of regional PPP Will have a high rate of social and economic return

WHY ? Catastrophe Risk Insurance Facility in South East Europe One of the most seismically active region of the world Highly vulnerable to floods

Seismic Map of Europe Peak Ground Acceleration Map 475 years Return Period - Source: GSHAP

Regional versus National Diversification of Risk will reduce premium for homeowners and SMEs. Disaster insurance for small countries may not attract affordable re-insurance. There are considerable economies of scale in transferring the risk through a regional facility. Countries learn from each other positive experiences. Countries will benefit from coordinated World Bank UN ISDR and RCC assistance to the program.

The global economic and financial crisis The effects of the crisis are starting to be felt across the region. It will have a direct impact on trade, FDI, remittances, and the financial sector, and economic growth. Future development prospects might be further jeopardized by a major natural disaster.

The global economic and financial crisis Given the severely constrained budgets for emergencies SEE countries urgently need to invest in PPPs in disaster risk management including risk financing

WHY is the effort worthwhile? Adverse impacts of natural hazards on countries fiscal stability and macro-economic performance. Natural disasters are increasingly affecting the ability of countries to satisfactory implement national fiscal programs. With the growing frequency and severity of catastrophic events, it is becoming increasingly difficult to cover their economic costs from recurring country budgets.

Albania, Bulgaria, Croatia, Montenegro, Bosnia and Herzegovina and Serbia are committed to establish SECE CRIF. RCC, WB, EU, OECD and the UN ISDR fully support the Initiative. The Swiss Government has offered a grand of $ 2,5 Million

WHY does the Initiative need Donor support? Out of the Region crisis impact - The effects of the crisis are starting to be felt across the region. It will have a direct impact on trade, FDI, remittances, and the financial sector, and economic growth. Future development prospects might be further jeopardized by a major natural disaster. Insufficient local Budget resources Multiple effect of relatively small donor support

Thank you for your attention! Contact details: