January 19th, 2017

Public Sector Risk Financing Perspectives in Latin America: Part II

Posted at 1:00 AM ET

aidan-pope-headshot-sm21Aidan Pope, Managing Director


In response to the continued need for post-event budget allocation, the Mexican federal government established the Fund for Natural Disasters (FONDEN) in 1996 (1). It is a financial vehicle by which the federal government provides pre-event funding from tax revenues for post-disaster response and reconstruction - it has been critical in providing the government with access to international risk transfer schemes.

FONDEN has in place an indemnity insurance program covering 100 percent of the federal government’s assets and up to 50 percent of provincial assets. The Mexican government’s long-term relationship with the international reinsurance market has been crucial in developing the structure of the insurance program. In addition, the federal government is requiring a risk management strategy for provincial governments that promotes accurate risk valuation and transfer decisions for provincial catastrophe risks.

FONDEN has also been active in the capital markets with the placement of catastrophe bonds for hurricane and earthquake risk. Losses from 2016’s Tropical Storm Patricia led to a catastrophe bond payment of USD 50 million to the Mexican government.

Blue Marble Microinsurance, an insurance industry consortium and venture incubator, demonstrates industry initiative to bring insurance solutions to emerging countries. The consortium consists of American International Group, Inc., Aspen Insurance Holdings Limited, Guy Carpenter & Company, LLC with Marsh & McLennan Companies, Inc., Hamilton Insurance Group, Ltd., Old Mutual plc, Transatlantic Reinsurance Company, XL Catlin and Zurich Insurance Group.

It is committed to launching ten microinsurance ventures over the next 10 years to deliver solutions that address the risk management needs of the underserved. Through collaboration and innovative technology-enabled platforms, Blue Marble seeks to improve sustainability by expanding the role of insurance in society. These ventures will consider unique distribution methods, local partnerships, product development and impact services.

Blue Marble is currently working to close the protection gap in the risk that climate change poses to smallholder farmers in Latin America with the intention to launch pilots in 2017. Blue Marble understands the value of public sector-private sector partnerships in achieving its mission; it is coordinating its initiatives to bolster agricultural production and the management of associated risks with local government officials, including Ministers of Agriculture.

Link to Part I>>

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1. https://www.gfdrr.org/sites/gfdrr.org/files/documents/Mexico_FONDEN_final_GFDRR.pdf

*Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities LLC, a US registered broker-dealer and member FINRA/NFA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd. (MMCSEL), which is authorized and regulated by the Financial Conduct Authority, main office 25 The North Colonnade, Canary Wharf, London E14 5HS. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities LLC, MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product. **GC Analytics is a registered mark with the U.S. Patent and Trademark Office.

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