regulation of catastrophe risk in colombia: country experience msc. jairo alberto pérez muñoz...

Regulation of Catastrophe Risk in Colombia: Country

Experience

MSc. Jairo Alberto Pérez Muñoz

Director of Insurance SupervisionColombian Banking Superintendency

The World Bank, Washington, june 2,3. 2003

PROLOGUEPROLOGUE

Insurance RegulationInsurance Regulation

CatastropheCatastrophe Risk Management

Seismic Plates Afecting Colombia

CARIBBEAN

NAZCASOUTH AMERICAN

COCOS

0 - Maximum probable intensity (MM) < V in 50 years

1 - Maximum probable intensity (MM) < VI in 50 years

2- Maximum probable intensity (MM) < VII in 50 years

3 - Maximum probable intensity (MM) < VIII in 50 years

4 - Maximum probable intensity (MM) < IX in 50 years

Barranquilla

Cartagena

Sta fe de Bogotá

Medellín

Cali

Münchener Earthquake ZonesColombia

Exposure Zones According to Mercali’s ScaleExposure Zones According to Mercali’s Scale

Other Natural Risks Other Natural Risks

Tidal waves Tsunami

Hurricaned winds

Vulcanic eruption

Floods

Slidings and avalanches

REGULATIONREGULATION

Decree 839, 1991:Decree 839, 1991: Deviation Claims Reserve: 40% of Deviation Claims Reserve: 40% of

net retained premiumsnet retained premiums CumulativeCumulative

Decree 2272, 1993Decree 2272, 1993 Probably Maximum Loss 15%Probably Maximum Loss 15%

(under study)(under study)


Coverage offered by insurance Coverage offered by insurance companies covers both earthquake companies covers both earthquake and vulcanic eruptionsand vulcanic eruptions

The fourth bussines line after auto, The fourth bussines line after auto, fire and compulsory autofire and compulsory auto


Reinsurance distribution:Reinsurance distribution:

Retention 40%Retention 40%

This retention is covered by XLCatThis retention is covered by XLCat

At least 15% as PMLAt least 15% as PML


Decree 663, 1993Decree 663, 1993

Compulsory earthquake insurance for:Compulsory earthquake insurance for: Mortgaged loansMortgaged loans Goods received as guaranteeGoods received as guarantee Buildings of entities supervised by Buildings of entities supervised by

the Superintendencythe Superintendency


Decree 2272, 1993Decree 2272, 1993

Insurance companies are requiered Insurance companies are requiered to inform their acumulations, their to inform their acumulations, their reinsurance agreements reinsurance agreements characteristics and their reinsurers characteristics and their reinsurers


Decree 2779, 2001Decree 2779, 2001

Regulates earthquake reserves Regulates earthquake reserves investmentinvestment

Titles issued or backed by foreign Titles issued or backed by foreign entitiesentities

Asigned limits for diversification Asigned limits for diversification purposespurposes


Solvency MarginSolvency Margin Based on fixed factors model, as the Based on fixed factors model, as the

higher between premiums or claims.higher between premiums or claims. No special treatment for earthquakeNo special treatment for earthquake Acceptance of deviation claims Acceptance of deviation claims

reserve as part of admited capital, to reserve as part of admited capital, to be considered as there is not a real be considered as there is not a real obligation against third parties.obligation against third parties.

RISK MANAGEMENTRISK MANAGEMENT

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


Identification:Identification: There exists risk maps for: There exists risk maps for:

earthquakes, vulcanic eruptions, earthquakes, vulcanic eruptions, tsunamis, erosion, slidings, tsunamis, erosion, slidings, avalanches, floods, hurricanes, avalanches, floods, hurricanes, storms, and in the case of crops for storms, and in the case of crops for frost, hail and othersfrost, hail and others


Oil and energy sectors counts with Oil and energy sectors counts with contingency plans contingency plans

There is no regulation for handling of There is no regulation for handling of radiation sources and for transport of radiation sources and for transport of polluting substancespolluting substances


MeasurementMeasurement An incipient processAn incipient process State owned buildings: about 70% State owned buildings: about 70%

insuredinsured Infraestructure: there is not a good Infraestructure: there is not a good

estimationestimation Optimised by means of privatizationOptimised by means of privatization


MeasurementMeasurement

Private sector:Private sector:

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


Risk ControlRisk Control

Estructural reinforcement:Estructural reinforcement: Reduce exposure to damage and Reduce exposure to damage and

reduce premiums cost.reduce premiums cost. Hospitals and schools as priorityHospitals and schools as priority Allocation of responsibilities at Allocation of responsibilities at

regional levelregional level



Study on “Retention and Study on “Retention and Transference of Seismic Risk”Transference of Seismic Risk”

Self retentionSelf retention SecuritizationSecuritization Catastrophe BondsCatastrophe Bonds



Micro zonificationMicro zonification

Studies carried out in the main cities Studies carried out in the main cities used as well as to optimize resources used as well as to optimize resources in emergencies.in emergencies.

ZONA 2

ZONA 5

ZONA 5

ZONA 2

ZONA 1

Au to p is ta E l D ora d o

Car

re ra 1

0 0

Ave n id a Ce n te n a ri o

Avenida Ciudad de Cali

Av. Del Congreso Eucarístico

Cal le 6 8

Rio Juan Am ari llo

Ca lle 80

Ri o Negr o

Tranv. 23

Av. 19

Av. R od ri go La ra B oni ll a

Rio F ucha

Cota 26

00 m.Lín

ea Férre aAv

.9

Av. 7

Carre

ra 11

Cota 26

00 m.

Av. D

e Los Cerro

s

Av. Carac

as

C all e 45

Av. Ciudad de Quito

Av. C

ircunvalar

Av. L

o s Com

uner os

Av . Ji menez De Quesada

Cota 2600 m.

Cota 260

0 m

Calle 50

D Sur

Av. 13

Sur

Rio Tunj ue

lito

Rio Tunj ueli to

X = 1025000 m

X = 1021000 m

X = 1017000 m

X = 1013000 m

X = 1009000 m

X = 1005000 m

X = 1001000 m

X = 997000 m

X = 993000 m

X = 989000 m

X = 985000 m

Y =

98

50

00 m

Y =

98

90

00 m

Y =

99

30

00 m

Y =

99

70

00 m

Y =

10

01

000

m

Y =

10

05

00

0 m

Y =

10

090

00

m

Ca lle 44

Sur

Av. 44

Sur

20 S ur

Av. De La s A m er i cas

Av. Boyacá

Av. 9 4

Call e 1 1

Carrera 4

Av. Ferna

ndo Mazuera

Carrera 7

Carrera 6

Call e 27 Sur

Aut. A Vil la v i cenc i o

C al le 48A S ur

Av . B oy ac á

Av. 13

Av. 30

Av. General San

tander

Aut . D el S ur

Av . 1o. De M ay o

Av. C

iudad d

e Villavicencio

Di ag . 43 S

u r

Carrera 86

Av. Acoberto Mejia

Rio Bogotá

Cal le 2 2

Av . Luis Car los Galan Tra

ns. 85

Av. La Constitucuón

Carrera 66A

Av. 68

Av . 7 8

Cañ o

Carrera 38

Av. 10 0

Av. P epe S ie rr a

C*

B*

A*G*

H*

F*

Cal le 13 8

Av. S

uba

Av. 147

Cal le 142

Carrera 22Cal le 140 Carre

ra 19

Cal le 134

Cal le 88

Carrera 9Call e 80

Av. Chi le

Ramal Oriental

Ramal Occidental

Diag. 36 Sur

R io B ogot á

Carrera 13

Can

a l Có rd

oba

Rio Bogotá

Línea Férrea

Cota

2600 m

.

Cota 2600 m.

Ca lle

Cota 2600 m.

Cot a 26 00 m .

Cota 26

00 m.

Cota 2600 m

Rio

Tunjue

lito

T unj uel it oRi o

Av. CaracasAv. 10

Diag. 26 Sur

Cal le 4 4 Sur

Cal le 6

Av . 1o . D e Mayo

Carre

ra 68

Av. B

oyacá

Transv. 47

Carrera 7

Av. Ciudad de Q

uito

Carrera 50

Cal le 5 3

C all e 63

Di ag. 53

Call e 68

Cal le 72

Caño de Los C omune ros

Ca na l de S a

n Cri sto b al

Cana

l de R

io Se c o

Rio Fucha

Canal Boyacá

Ca lle 31

Cal le 3 9

Ri o Bog otá

Call e 59 A

Ri o B ogot á

Rio

Bog o

tá

Rio Bogotá

Rio Bogotá

Cal le 1 61A

Cal le 1 70

Av . San José

Aut. Pase

o de Los LIbe

rtadores

Carretera

Cen tra l de

l Norte

Carre

ra 15

Can a l de Los M oli nos

Cal le 1 27

26 0 0 m

.

260

0 m

.

E*

D*

Can al Có rd oba

Tr an

s vers

al 9 1

N

EW

S

BOGOTA

SEISMIC

MICRO – ZONES MAP


Monitoring:Monitoring:

A committee was established to A committee was established to monitor by means of performance monitor by means of performance indicators and a schedule of indicators and a schedule of activitiesactivities

regulation of catastrophe risk in colombia: country experience msc. jairo alberto pérez muñoz...

Documents

insurance companies

risk maps

regulation of catastrophe

supervised entities

vulcanic eruptionsthe

mortgaged loansgoods

premiums cost

national system