The governments of the Cayman Islands and 15 other Caribbean countries have renewed their hurricane and earthquake insurance policies for the year through the nonprofit Caribbean Catastrophe Risk Insurance Facility.
The Cayman-registered captive insurance company was formed in 2007 and provides coverage to the governments of Anguilla, Antigua and Barbuda, Bahamas, Barbados, Belize, Bermuda, Cayman, Dominica, Grenada, Haiti, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago, and Turks and Caicos Islands, according to a news release.
The countries renewed their insurance for the 2013/14 policy year that started June 1, the first day of hurricane season, according to the release.
The U.S. National Oceanic and Atmospheric Administration predicted an active 2013 hurricane season in the Atlantic Basin, stating a 70 percent likelihood of 13 to 20 named storms in the six-month period, above the seasonal average of 12 named storms.
This year, the facility added an excess rainfall policy to its portfolio of offerings for 2013/14. Rainfall is not included in the facility’s current hurricane policies, which cover damage from wind and storm surge.
Since 2007, the facility has made eight payouts totaling more than US$32 million to seven member governments on hurricane or earthquake policies.
All payouts were transferred within 14 days after each event, according to the news release.
The most recent payouts were from Hurricane Tomas in October 2010, where the facility paid Barbados, St. Lucia and St. Vincent and the Grenadines some US$12.9 million for damages.
The policy premium for Cayman’s government during the 2012/13 budget year was $770,000.
Cayman has been a member of the facility since it began. The facility was developed to help provide government with cash flow directly after major natural disasters in order to maintain essential government services until more resources become available, according to the facility’s website.
Caribbean governments can purchase coverage up to a maximum of US$100 million for each peril.
Premiums are determined by the amount of coverage a country elects, at what point the insurance is triggered, and the risk profile of the country, according to the Caribbean Catastrophe Risk Insurance Facility.
Cayman did not receive a payout after Hurricane Paloma in 2008, even though the storm caused major damage to the Sister Islands. In that case, the highest wind speeds were localized to Little Cayman and Cayman Brac, and when averaged out with relatively lower wind speeds in Grand Cayman, the weighted average did not trigger the insurance.
Because the facility did not pay out any claims during the past policy year, the facility was able to discount member countries’ premiums by 25 percent, according to the news release.
Lessons from Ivan
Like many people and businesses, Cayman’s government ran into difficulties with insurance companies after Hurricane Ivan in 2004. The government’s insurer, Cayman General Insurance, stated it was unable to meet its claims obligations from the storm.
Though an exact insurance claim was never calculated, the government’s losses from Ivan were estimated at US$108 million, according to a 2007 auditor general’s report. The government ended up settling with the company for a figure of $70 million. That included $50 million in cash, plus a 24 per cent shareholding in the company (in exchange for the $20 million remainder).
Subsequently, another insurance company purchased a 51 percent controlling interest in Cayman General Insurance for $8 million, meaning the company paid between five and 15 times less per share than the government did. In his report, the auditor general found government did not receive good value for money in the transaction, estimating that the shares given to government were worth less than $3 million.