Diapositiva 1

1
Regulation of Catastrophe Risk in Colombia
Country Experience
MSc. Jairo Alberto Pérez Muñoz Director of
Insurance Supervision Colombian Banking
Superintendency The World Bank, Washington,
june 2,3. 2003
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Insurance Regulation
Catastrophe Risk Management
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Seismic Plates Afecting Colombia
CARIBBEAN
COCOS
SOUTH AMERICAN
NAZCA
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Exposure Zones According to Mercalis Scale
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Other Natural Risks
Hurricaned winds
Floods
Vulcanic eruption
Tidal waves Tsunami
Slidings and avalanches
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REGULATION

• Decree 839, 1991
• Deviation Claims Reserve 40 of net retained
  premiums
• Cumulative
• Decree 2272, 1993
• Probably Maximum Loss 15
• (under study)

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REGULATION

• Coverage offered by insurance companies covers
  both earthquake and vulcanic eruptions
• The fourth bussines line after auto, fire and
  compulsory auto

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REGULATION

• Reinsurance distribution
• Retention 40
• This retention is covered by XLCat
• At least 15 as PML

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REGULATION

• Decree 663, 1993
• Compulsory earthquake insurance for
• Mortgaged loans
• Goods received as guarantee
• Buildings of entities supervised by the
  Superintendency

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REGULATION

• Decree 2272, 1993
• Insurance companies are requiered to inform their
  acumulations, their reinsurance agreements
  characteristics and their reinsurers

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REGULATION

• Decree 2779, 2001
• Regulates earthquake reserves investment
• Titles issued or backed by foreign entities
• Asigned limits for diversification purposes

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REGULATION

• Solvency Margin
• Based on fixed factors model, as the higher
  between premiums or claims.
• No special treatment for earthquake
• Acceptance of deviation claims reserve as part of
  admited capital, to be considered as there is not
  a real obligation against third parties.

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RISK MANAGEMENT

• After Popayán earthquake (1983) and Armero
  (1985), the National Goverment creates by means
  of law 46, 1998, the National System for
  Attention and Prevention of Disasters SNPAD

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RISK MANAGEMENT

• Identification
• There exists risk maps for earthquakes, vulcanic
  eruptions, tsunamis, erosion, slidings,
  avalanches, floods, hurricanes, storms, and in
  the case of crops for frost, hail and others

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REGULATION

• Oil and energy sectors counts with contingency
  plans
• There is no regulation for handling of radiation
  sources and for transport of polluting substances

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RISK MANAGEMENT

• Measurement
• An incipient process
• State owned buildings about 70 insured
• Infraestructure there is not a good estimation
• Optimised by means of privatization

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RISK MANAGEMENT

• Measurement
• Private sector
• Mortgaged Loans (more than 700.000), buildings as
  credits guarantee, common areas, buildings
  belonged by supervised entities, are required to
  be insured against earthquake

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RISK MANAGEMENT

• Risk Control
• Estructural reinforcement
• Reduce exposure to damage and reduce premiums
  cost.
• Hospitals and schools as priority
• Allocation of responsibilities at regional level

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RISK MANAGEMENT

• Risk Control
• Study on Retention and Transference of Seismic
  Risk
• Self retention
• Securitization
• Catastrophe Bonds

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RISK MANAGEMENT

• Risk Control
• Micro zonification
• Studies carried out in the main cities used as
  well as to optimize resources in emergencies.

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BOGOTA SEISMIC MICRO ZONES MAP
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RISK MANAGEMENT

• Monitoring
• A committee was established to monitor by means
  of performance indicators and a schedule of
  activities

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RISK MANAGEMENT