1 Katastrophen Quelle: Muenchener Rueck, 2006

Insured losses increase 2 From Hochrainer 2006

3 Scope for better adaptation to extremes But: 98% of funds for ex-post relief and reconstruction, only 2% for risk management Source: Munich Re, 2005 Impacts are magnitudes higher in low income countries

4 Entscheidungs-kriterien zB. Kosten-Nutzen Analyse Schema Risikomanagement II Identifikation Risiko Kontrolle Potentielle Nutzen Risikobewertung Potentielle Kosten und Effekte Risikovermeidung und -reduktion Risk Transfer Restrisiko

Objective: Finding a better balance between ex post and ex ante Source: Hoff et al., 2003 Proactive management of risks (ex ante) Responsive disaster management (ex post) Acts of God Unnatural Disasters

Source: Bettencourt et al., 2006 Planning and mainstreaming disaster risks into developmental planning Planning disaster risk into development Risikomanagement im Fall von Naturkatastrophen

Planning and mainstreaming disaster risks into developmental planning Source: Bettencourt et al., 2006 Planning disaster risk into development

Planning and mainstreaming disaster risks into developmental planning Source: Bettencourt et al., 2006 Planning disaster risk into development

Planning and mainstreaming disaster risks into developmental planning Source: Bettencourt et al., 2006 Planning disaster risk into development

Planning and mainstreaming disaster risks into developmental planning Source: Bettencourt et al., 2006 Planning disaster risk into development

Planning and mainstreaming disaster risks into developmental planning Source: Bettencourt et al., 2006 Planning disaster risk into development

Planning and mainstreaming disaster risks into developmental planning Source: Bettencourt et al., 2006 Planning disaster risk into development

Planning and mainstreaming disaster risks into developmental planning Source: Bettencourt et al., 2006 Planning disaster risk into development

Planning and mainstreaming disaster risks into developmental planning Source: Bettencourt et al., 2006 Planning disaster risk into development

Planning and mainstreaming disaster risks into developmental planning Source: Bettencourt et al., 2006 Planning disaster risk into development

Planning and mainstreaming disaster risks into developmental planning Source: Bettencourt et al., 2006

Planning and mainstreaming disaster risks into developmental planning Source: Bettencourt et al., 2006

18 Source: Bettencourt et al., 2006 Risikomanagement im Fall von Naturkatastrophen

19 Staat und Risiko Quelle: Mechler, 2004

20 Staat und Risiko Aus wohlfahrtstheoretischer Sicht ist Staat Risiko ausgesetzt aufgrund seiner 2 zentralen Funktionen –Allokation von Gütern und Dienstleistungen (Saubere Umwelt, Bildung, Sicherheit...) –Einkommensverteilung. Aus Wohlfahrtstheorie: Rolle des Staates aufgrund von Verletzungen der zwei fundamentalen Theoreme der Wohlfahrtsökonomie: 1. Theorem: freie Marktwirtschaft ohne Staatsintervention führt zu pareto-effizientem Zustand 2. Theorem: Fairer pareto-effizienter Zustand kann durch Umverteilung der Anfangsbestände erreicht werden. Theoreme werden in folgender Weise verletzt –Völliges Marktversagen bei öffentlichen Gütern, oder partielles Marktversagen bei Externalitäten, economies of scale, und imperfekter Information. ---> Güter müssen vom Staat bereitgestellt werden –Anfangsbestände werden durch Markt nicht umverteilt, Staat unternimmt dies mittels progressiver Besteuerung und Transferzahlungen.

21 Öffentliche Gueter Definiert nach –Moeglichkeit des Ausschlusses –Rivalitaet im Konsum

22 Risiko vs. Unsicherheit Knight: “Risk is measured Uncertainty.” Grade von Risiko und Unsicherheit: 1.Völlige Unsicherheit Ausprägungen wenig bekannt, Wahrscheinlichkeiten nicht bekannt 2.Subjektive Unsicherheit Ausprägungen bekannt, Wahrscheinlichkeiten nicht 3.Risiko, Objektive Unsicherheit: Ausprägungen und Wahrscheinlichkeiten bekannt 4.Sicherheit: Physik (Ausnahme Teilchenphysik)

23 Risikowahrnehmung Quelle: WBGU, 1998

24 Risiko vs. Unsicherheit Verschiedene Definitionen und Interpretationen: gängig: Risiko=P(X)*X Kann gemessen werden als E(X), V(X), ganze Funktion downsideupside D Prob. Nutzen/Profit etc.

25 Verteilung und Risiko Verteilungen: –Normal vs. Extremwert-Verteilung Extremwert: “fat tails” Normal: charakterisiert durch E(x) und V(X)

26 Entscheidung unter Unsicherheit Limited information approaches Cutoff Period, Discount rate Adjustment Game Theory Approaches Maximin oder Wald Kriterium: –Fokus auf ungünstigster Ausprägung –Wähle Option mit bester ungünstiger Ausprägung Minimax/Savage Kriterium –Berechne Differenz zwischen realisiertem und potentiellen Nutzen bei Kenntnis des wahren Zustandes –Berechne für jede Option den maximalen Verlust –Wähle Option mit geringstem maximalen Verlust Sensitivity Analysis Quelle: Kramer, 1995

Probability based methods: -Safety-First Analysis -Mean-Variance Analysis -Stochastic Dominance Will be discussed later. 27

28 Maximin und Minimax Beispiel Maximin oder Wald Kriterium: –Fokus auf ungünstigster Ausprägung –Wähle Option mit bester ungünstiger Ausprägung Minimax/Savage Kriterium –Berechne Differenz zwischen realisiertem und potentiellen Nutzen bei Kenntnis des wahren Zustandes –Berechne für jede Option den maximalen Verlust –Wähle Option mit geringstem maximalen Verlust

29 Entscheidung unter Risiko Value at Risk (VaR) VaR Betrachtung der 5% unguenstigsten Auspraegung Risikobasiert! 5%

R. Mechler Risiko-Management im Öffentlichen Sektor 30 Thema 2: Risikomasse: Value at Risk

31 Dichte und Verteilungsfunktion Quelle: Hardaker et al., 1997

32 Verteilungsfunktion für Schadensfrequenzkurve “Exceedance probability” Quelle: Hochrainer, Jahr Ereignis 50 Jahr Ereignis 10 Jahr Ereignis Benoetigt Katastrophenmodelle und Extremwertstatistik

Extremwertstatistik: Thema 7: Block Maxima Methode Thema 8: Threshold Ansatz 33

Naturkatastrophen Effekte 34

Indirect Effects R. Mechler Risiko-Management im Öffentlichen Sektor 35 GDP projections in comparison to observed GDP effects (dashed line) due to Hurricane Mitch (Year 5) in billion USD.

Thema 6: Ansaetze fuer Katastrophenmodelle Thema 9: Simulationsmethoden R. Mechler Risiko-Management im Öffentlichen Sektor 36

37 Risikomanagement unter Unsicherheit Quelle: Fone and Young, 2000

38 Vermeidung Verringerung Regulativ Strukturell Planerisch Risikovermeidung und -reduktion

39 Disaster risk financing Government assistance (taxes) Kinship arrangements Donor assistance Insurance and reinsurance, microinsurance Catastrophe bond, index insurance Contingent credit, reserve fund Turkey: Public-private insurance (2000) India/Malawi: Index insurance derivatives (2004/05) Colombia: Contingent credit (2005) Ethiopia: Emergency relief reinsurance (2005) Mexico: Cat bond (2006) Caribbean: regional insurance pool (2007) GIRIF (under development) Pacific Island Pool (under development) Traditional approach to risk financing ProactiveReactive New paradigm in risk management: from reactive to proactive

40 Financial risk management: Types of instruments Security for loss of assets (households/businesses) Food security for crops/livestock loss (farms) Security for relief and reconstruction (governments) Post- disaster (ex post) emergency loans; money lenders; public assistance sale of productive assets, food aid diversions; loans from World Bank and other IFIs Pre-disaster (ex ante) Non-marketkinship arrangements voluntary mutual arrangements international aid Inter- temporal micro-savingsfood storage catastrophe reserve funds, regional pools, contingent credit Market- based risk transfer property and life insurancecrop and livestock insurance (also index based) insurance or catastrophe bonds (also index based)

Government Risk Management 41

42 Versicherung und Rückversicherung Quelle: McIsaac and Babbel 1995

Thema 11: Rueckversicherung R. Mechler Risiko-Management im Öffentlichen Sektor 43

Catastrophe bonds 44

Thema 18: Catastrophe bonds R. Mechler Risiko-Management im Öffentlichen Sektor 45

Ende Tag 1 R. Mechler Risiko-Management im Öffentlichen Sektor 46

New paradigm in risk management: from reactive to proactive

48 Contingent Credit

49 Mitigation

50 Global risk sharing and developing countries

51 Katastrophenversicherung für die Armen?

52 Source: Munich Re, 2005 Global distribution of insurance premiums per capita Disaster insurance density

53 Insurance density in selected events Source: Gurenko, 2004

54 Natural hazards: Major source of risk for poor Prevalence of death due to disaster is 4 times higher in low-income countries Disasters are an important dimension of poverty - - per WDR 2000/2001 With similar patterns of disasters, Peru fatalities average 2900 a year and Japan averages 63

55 “Hotspots”

56 Why are disaster impacts increasing? Increases in wealth and population Improved reporting Climate change Increased vulnerability due to: –Demographic changes –Increased concentration of assets –Environmental degradation –Poverty –Rapid urbanization and unplanned development

57 Why Do We Need Risk Financing ? Micro level Provides financial protection from shocks –Household, business and farm income stability –Incentive to pursue higher-risk, higher return strategy Avoids negative coping strategies –Economically –Environmentally Enhances access to finance –Reduced defaults, thus lower interest rates –Enhanced investment prospects in areas Macro level Governments need better management of exposed public assets and emergency response: –Ex-ante instead of ex post –Predictable resources –Avoid diversion of public funds from development priorities –Ability to help population and rebuild infrastructure quickly Donors and multilaterals need to improve the financing of aid operations and their exposure (via their credit portfolio) –Increased aid resources –Improved planning –Timely intervention –Cost-effectiveness Source: H. Ibarra, 2006

Austrian Disaster Fund

59 Novel instrument used: Catastrophe bond Source: Lane, Sponsor creates issuer: Special Purpose Reinsurer, which is the source of financial protection 2. Issuer offers bond to investors: the proceeds are kept in a collateral account. 3. Sponsor pays premium to issuer: premium and bond proceeds from collateral (low-risk) investment in financial markets pay interest to investors. 4. If cat bond is triggered funds are withdrawn from collateral and paid to sponsor 5. If there is no event, bond proceeds/principal is returned to investors.

60 CATSIM model framework Integrated risk management model: From hazard to fiscal and economic implications Operationalization of resilience and vulnerability Adaptation measures Time horizon flexible

61 CATSIM: Direct losses and financial vulnerability CATSIM model framework: can be used to determine risk aversion and risk layers Asset risk function: losses vs. probability Sources for financing losses “Financing gap” ~70 year event: Layer to be transferred?

62 Zusammenfassung Einige Staaten (zunehmend) risikoavers in Bezug auf Katastrophenrisiken Neuere Lösungen auf Mikro-, Meso und Makro- Ebene Staat kann –Eigene Verbindlichkeiten versichern –HH und Unternehmen zu Hilfe kommen –Internationale public-private partnerships beanspruchen Kosten vs. Nutzen? Internationale Gemeinschaft: von implizitem Rückversicherer der letzen Instanz zu explizitem Rückversicherer

63 Weiterfuehrende Literatur General Linnerooth-Bayer, J. and Mechler, R. (2007). IInsurance against Losses from Natural Disasters in Developing Countries. Background paper for United Nations World Economic and Social Survey (WESS). Mechler, R. (2004). Natural Disaster Risk Management and Financing Disaster Losses in Developing Countries. Verlag für Versicherungswissenschaft, Karlsruhe. Gurenko, E., (2004). Building Effective Catastrophe Insurance Programmes at the Country Level In: Gurenko, E. (ed.). A Risk Management Perspective Catastrophe Risk and Reinsurance: A Country Risk Management Perspective, Risk Books, London: 3-16 Disaster insurance- macro Cardenas, V., Hochrainer, S., Mechler, R., Pflug, G., Linnerooth-Bayer, J. (2007). Sovereign Financial Disaster Risk Management: The Case of Mexico. Environmental Hazards 7 (2007): Disaster insurance- micro World Bank (2005). Managing Agricultural Production Risk. Innovations in Developing Countries, Report No GLB, Washington DC, The World Bank, Agriculture and Rural Development Department (ARD). Dischel, R. (2002). Introduction To The Weather Market: Dawn to Mid-Morning. In: Dischel, R. (ed.). Climate and the Weather Market, Risk Books, Haymarket.

64 Literatur Empfohlen Moss, D. (2002). When All Else Fails. Government as the Ultimate Risk Manager. Harvard University Press, Cambridge, Massachusetts.  Kapitel 2 (ausgeteilt) Weitere Literatur Beck, U. (2007). Weltrisikogesellschaft. Suhrkamp, Frankfurt a. Main.  Risiko allgemein Bernstein, P. (1996). Against the Gods. Wiley, New York.  Risiko allgemein Fone, M. and Young, P. (2000). Public Sector Risk Management, Butterworth Heinemann, Oxford.  Uebersicht Public Sector Risk Management Gurenko, E. (2004). Catastrophe Risk and Reinsurance: A Country Risk Management Perspective. London, Risk Books, London.  Naturkatastrophen Mechler, R. (2004). Natural Disaster Risk Management and Financing Disaster Losses in Developing Countries. Verlag für Versicherungswissenschaft, Karlsruhe.  Naturkatastrophen Schick, A.and Polackova Brixi, H. (eds.) (2004). Government at Risk. World Bank and Oxford University Press, Washington DC.  Fiskalisches Risikomanagement