Flood risk in New Jersey poses a serious threat to its economy and insurance market. On average, the state experiences 1.5 flood events per year resulting in $138 million in insured losses. Recent decades have seen above average losses, with annual losses averaging $240 million since 1990. The current National Flood Insurance Program is unsustainable and does not adequately account for flood risk zones or climate change impacts. Public-private partnerships and alternative risk transfer products are needed to help prepare New Jersey's economy and make the insurance industry more resilient to increasing flood risks.

1. Flood Risk in New Jersey:
Thoughts from an Insurance Expert
Megan E. Linkin, Ph.D.
Allianz Risk Transfer
March 9th, 2012

2. Disclaimer
The information contained in this presentation is of a general nature and is intended for the recipient only
as generalized information. This presentation is not intended as, and shall not be interpreted as, (i) an
incentive or offer to buy or sell (re)insurance products or other financial instruments in any jurisdiction
where, or to any party to whom, the offer or distribution of such products is not allowed, (ii) an offer to
enter into the relationship of principal/intermediary or similar structure, whereby the recipient would
represent an Allianz SE entity or any of its products or services, (iii) financial product advice, or (iv) any
offer or solicitation to make or offer any investment product or security or enter into any transaction for
any purpose whatsoever. Each party contemplating participating in any eventual transaction arising
from this presentation and discussion must make its own investigations, analyses and assessments of
the terms of such transaction, including (without limitation) the merits and risks involved. ART makes no
statement or representation regarding the permissibility and suitability of participating in any
transaction, and each party considering any eventual transaction should consult its own
legal, tax, accounting and other professional advisors.
The presentation has been prepared as of the date hereof and is subject to change or amendments
without notice. Allianz Risk Transfer Group makes no representation, warranty or undertaking, express
or implied (including, without limitation, any warranty of suitability or advisability for any particular
purpose), as to the accuracy or completeness of the information provided in this presentation, and no
liability or responsibility is accepted by ART in connection herewith.
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3. Weather and its Economic Impact
United States
 All 11 non-governmental sectors
of US economy are sensitive to
weather variability
 US economic output varies as
much as 3.4% of the 2008 gross
domestic product (GDP; $485
billion) as a direct result of weather
variability
 NOAA estimates $2.65 trillion, or
25% of the US GDP, is impacted by
weather
 Economic sensitivity of New
Jersey is 8-10% of gross state
product (GSP) due to weather
Source: Lazo et al (2011)
variability
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4. New Jersey Floods
A Brief History
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Source: NWS, the Star Ledger, and the Associated Press

5. New Jersey Floods
By the Numbers
 On average, 1.5 flood events occur in New Jersey per year and the annual
average insured loss from flood events is $138 million (2012 USD), based on
PCS data between 1950 and 2012.
 The return period for a $100 million (2012 USD) insured loss is 3 years.
 Annual average loss since 1990 is $240 million (2012 USD), over $100 million
more than the long term mean.
New Jersey Flood Losses - 2012 as-if
2.00
Billions
2012 As-if Loss
1.60
2012 as-if loss (USD)
1.20
0.80
0.40
0.00
© Copyright Allianz 3/15/2012 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: ISO PCS Year

6. The Current State of Flood Insurance
The National Flood Insurance Program
 Most private insurers do not cover flood losses due to the concern of adverse
selection.
 In 1968, the US government created the National Flood Insurance Program to
help property owners obtain flood insurance to offset requests for disaster
funding after large events.
 Homeowners can participate in NFIP if the community adopts a floodplain
management program.
 Since 1978, the NFIP has paid out over $38 million in claims, mostly in the
state of Louisiana.
 Premiums are based on regularly updated flood insurance rate maps
(FIRMs), showing the 100-year flood boundary and the 500-year flood
boundary.
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7. Vulnerability of the New York/New Jersey Metro
Region
 Top 10 in population
vulnerable to coastal
flooding
 Second only to Miami in
assets exposed to coastal
flooding
 Second only to
Tokyo, Japan for assets
exposed to wind damage
 BAU scenario: $2.5 trillion
in assets exposed to sea
level rise
© Copyright Allianz 3/15/2012 Source: OCED

8.  Nightmare scenario: Borderline
Category 3/4 making landfall in
southern Ocean County
 Economic/insured loss potential
2-3 times Hurricane Katrina
Source: AIR/III
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9. Weather Events and Climate Change
 Impossible to determine impact of
climate change on individual events
 Recent publications suggest
decrease in overall hurricane
frequency and an increase in major
hurricane frequency
Source: GFDL
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10. Future Projections
Risk Baseline 2020s 2050s 2080s
SLR -- +2-5 in +7-12 in +12-23 in
Rapid ice -- +5-10 in +19-29 in +41-55 in
melt
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Source: NPCC

11. Flood Insurance and Climate Change
Considerations in the Future
 NFIP must begin to increase spatial resolution of FIRMs to develop more
accurate premium calculations.
 Climate change scenarios should be included in FIRMs, even if the scenarios
do not immediately affect rate calculation.
 Active participation by the private market to avoid exhausting NFIP reserves.
 The private insurance industry, in addition to providing traditional
insurance, must develop alternative risk transfer products which can allow
municipalities and states to transfer flood risk to the financial markets.
 To engage private sector, the government must deter development in highly
exposed areas, such as barrier islands and wetlands.
 A real public-private partnership is necessary to prepare the state of New
Jersey economically for climate change.
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12. Flood Insurance and Climate Change
Considerations in the Future
 NFIP must begin to increase spatial resolution of FIRMs to develop more
accurate premium calculations.
 Climate change scenarios should be included in FIRMs, even if the scenarios
do not immediately affect rate calculation.
 Active participation by the private market to avoid exhausting NFIP reserves.
 The private insurance industry, in addition to providing traditional
insurance, must develop alternative risk transfer products which can
allow municipalities and states to transfer flood risk to the financial
markets.
 To engage private sector, the government must deter development in highly
exposed areas, such as barrier islands and wetlands.
 A real public-private partnership is necessary to prepare the state of New
Jersey economically for climate change.
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13. Alternative Risk Transfer Products
Excessive Rainfall Cover
 Index-based weather cover is a Historical Payout - KEWR Seasonal Precipitation Call Option
4.50
simple and transparent financial
Millions
4.00
solution which allows for quick
3.50
settlement.
3.00
 Station based weather
Payout (USD)
2.50
observations from a National
Weather Service weather station 2.00
Payout
are used to both price and settle 1.50
the contract. 1.00
 Rainfall cover, using a monthly or 0.50
seasonal trigger, can provide -
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near-term financing to cope with
Year
the economic stress of flooding.
 Precedents exist (Alabama Weather Station Newark-Liberty International Airport
SIF, CCRIF) where the public Dates Covered May 1 - September 30
Weather Variable Precipitation
sector has purchased alternative
Trigger (inches) 25.4
risk transfer solutions to receive Tick ($/inch) 375,000
quick funds during a post-disaster Limit 5,000,000
period. Rate on Line 10.01%
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14. Alternative Risk Transfer Products
Cat-in-the-Box Transaction
 A “cat-in-the-box” parametric
cover pays out after a natural
catastrophe exceeds a pre-
determined intensity in a defined
area.
 Simple intensity
measurements, such as Saffir-
Simpson Scale for hurricanes or
the Modified Mercalli Intensity
Scale for earthquakes, are used
as triggers.
 A third party, such as the
National Hurricane Center or
United States Geologic
Survey, reports intensity Source: NHC
measures, keeping the
transaction transparent. Region Within 50 miles of New Jersey state borders
Intensity Trigger (Saffir-Simpson Scale) Category 1
 Provides post-event financing Payout 10,000,000
almost immediately after event. Event Probability 6.17%
Rate on Line 12.35%
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15. Conclusions
 Flooding is a significant driver of insured and economic loss in New
Jersey.
 The most recent two decades have experienced above average flood
losses when compared to the long term
 The current state of flood insurance is not fiscally responsible, and
does not delineate enough risk zones.
 Climate change adds new challenges, by both altering the shape of the
coast line and impacting the frequency and severity of individual weather
events which cause severe flooding.
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