Severe weather events will increasingly be the norm, and New Jersey must plan for them. An insurance product for municipalities called parametric insurance offers a way to get cash to local officials quickly after such an event.

1. Revive, Rebuild, Recover:
Creating a Sustainable NJ
Coastline Megan Linkin, Ph.D.
Natural Hazards Expert, Swiss Re

2. Table of Contents / Agenda
 New Jersey by the Numbers
 Coastal Hazards Facing New Jersey
 Bringing in the Re/Insurance Industry
 Concluding Thoughts
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 2

3. New Jersey by the
Numbers
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 3

4. New Jersey Facts and Figures
 Total population: 8.8 million people (2010
Census)
 Population in coastal counties: 3 million
people (34% of state population)
 The leisure, hospitality and recreation sector
of the economy generated $43.4 billion of the
2010 gross state product, equating to 8.9%
(NJ Bureau of Labor Market Information
2012).
– Most tourism is generated by the Jersey
Shore
 The Barnegat Bay generates $4 billion in
annual economic activity, $2.3 billion in
ecosystem services and $2 billion in annual
wages (APP 2012).
 Economic sensitivity due to weather variability
is 8 – 10% of GSP (Lazo et al. 2011).
Source: Lazo et al. (2011)
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 4

5. The Aftermath of Superstorm Sandy
 Severe damage to infrastructure, mass transit and
the highway system
 On average, 30 – 40 feet of beach lost along the
coast. (Associated Press 2012)
 72,000 buildings in New Jersey impacted by the
storm (FEMA 2012)
– 500 structures destroyed
– 5,000 structures suffered major damage
– 24,000 structures suffered minor damage
 Estimated $29.4 billion in physical economic
damage according to Governor Chris Christie's
office
Ortley Beach, NJ – November 17, 2012
Source: Ocean County Police Blotter – Projected to rise in the coming months as full
impact on economy is revealed (tourism, real
estate prices)
 Insured losses in New Jersey estimated around $4
billion (PCS)
 Total NFIP losses are estimated at approximately
$12 billion (Business Insurance 2012)
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 5

6. Sandy's Place in History
Economic Losses from Coastal Storms in New Jersey
Estimated economic losses from
Sandy are 5 - 6 times the second
largest event, the Ash Wednesday
1962 nor'easter
Source: NJ.com
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 6

7. Coastal Hazards Facing
New Jersey
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 7

8. Coastal Hazards
Storm Surge
 Sandy's storm tide ranged from 8 – 14.3 feet in
the NY/NJ metro area
– Sea level at the Battery has increased 10 –
15 inches in the last 100 years
– This sea level rise, thought to be half natural
and half anthropogenic, exacerbated Sandy's
storm surge
 A category 3 hurricane striking the NJ coast
TODAY at high tide would bring a storm tide
between 10 and 25 feet
 With another 1 – 2 feet of anthropogenic sea
level rise projected to occur by 2050, another
storm less intense than Sandy will be able to
generate higher storm tides by mid-century
Source: NOAA/NHC
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 8

9. Coastal Hazards
Wind
Source: NOAA/CPC Source: NOAA/GFDL
 Sandy followed the Gulf Stream north along the southeast and Mid-Atlantic United
States
 Research into the behavior of tropical cyclones in a warmed climate:
– Overall decrease in tropical cyclone frequency
– Increase in the frequency of the most severe (category 4 and 5) events
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 9

10. Bringing in the
Re/Insurance Industry
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 10

11. The Role of Re/Insurance
Closing the Financial Gap – Post-event statistics
 On a typical day, Toms River, NJ, 911
dispatch received 250 calls.
– In the 24 hours after Hurricane
Sandy, more than 1,300 calls were
logged
 NJ Transit estimates that between a
quarter to a third of rolling stock was
damaged by Sandy.
 7 million people affected by power
losses, or 80% of the state's
population.
 Approximately 333,922 cubic yards
of Sandy-related debris was removed
from only six towns in Monmouth and Source: Personal
Ocean Counties (Asbury Park, Beach
Haven, Eatontown, Howell, Long
Branch and Middletown).
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 11

12. The Role of Re/Insurance
Enhancing Flood Insurance
 The National Flood Insurance Program (NFIP) has paid out $33.8 billion (real USD)
in losses since 1978.
 Five multi-billion dollar losses have occurred since 2001, leaving the NFIP in $18
billion of debt.
– The NFIP is without the borrowing capacity to meet potential Sandy-related
losses
 Congressional renewal of the NFIP in mid-2012 came with a mandate to
investigate mechanisms to bring in the private insurance market.
 Governor Andrew Cuomo created a task force post-event to investigate the
potential insurance solutions to address questions which have arisen after Sandy.
– Traditional re/insurance solutions are possible and viable, albeit with a
complicated claims process
– Public-private partnerships: Risk transfer solutions which provide rapid
financing to a government client in the wake of a natural disaster
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 12

13. How do Parametric solutions work:
MultiCat Mexico hurricane example
Trigger:
Hurricane of 920
mb or lower
through box =
payment
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 13

14. Traditional vs. Parametric –
Benefits to buyer
Topic Traditional Insurance Parametric Solutions
Use of Proceeds Intended to cover loss Used at buyers
sustained discretion
Speed of Payment Subject to loss Rapid: 2 – 6 weeks
adjustment (can be slow)
Loss Adjustment / Yes - buyer may need No – little claims
Administrative Process own claims adjusters administration needed
Transparency Loss settlement is Parametric triggers
complex to explain easier to explain
Pricing Flexibility Limited modifications Structure can be
adjusted to price
Changes in Exposure Annual adjustments No adjustment needed
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 14

15. How others have used parametric
solutions
Country Client Coverage Size Use of Funds Form
Government of USD 290 million Cover emergency Cat Bond (ILS)
Mexico (Hurricane and expenses following
Earthquake) disasters
Caribbean USD 111 million Provide financial liquidity Parametric
Catastrophe Risk (Hurricane and for the government reinsurance
Insurance Facility Earthquake) following disasters and derivative
State of Alabama Transaction size Pay for increased Insurance
not disclosed insurance costs following
(Hurricane) hurricanes
University of USD 50 million Covering losses from Insurance
Texas Medical (Hurricane) hurricanes to soften impact
Branch to University system
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 15

16. Concluding Thoughts
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 16

17. Conclusions
 Good news…
 Sandy presents the State with an opportunity to fortify the coast and its
communities by implementing cohesive dune systems and stricter building
codes
 Bad news…
 Coastal areas are highly exposed to storm surge and damaging winds and
anthropogenic climate change will exacerbate storm surge via sea level rise
 Good news…
 Risk management strategies and product offerings from the private
re/insurance industry can help the state of New Jersey and its municipalities
both maintain the insurability of the coastal region and financially prepare for
significant weather events.
Rebuilding a resilient coast will be a joint effort between the government,
the private sector and academia!
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 17

18. M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 18

19. "The Jersey Shore, for those of us
born and raised here, is more than a
summertime destination. It is in our
bones and blood. It defines our state
and it defines us."
-- Home News Tribune, 11/11/2012
“[The Jersey Shore] is our most
valuable resource, natural and
otherwise, on levels that go so much
deeper than money. The ocean is
soothing when not raging. The shore
breezes cool us, when not uprooting
us. It is our playground, when not
leveled. It is our claim to fame, in good
times, and, now, in very bad. Here's
another claim: We took Mother
Nature's best shot, and we're still
"Cause down the shore, standing."
everything's alright." -- The Star Ledger, 11/2/2012
-- Bruce Springsteen, "Jersey Girl"
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 19

20. Thank you

21. Case study Mexico:
MultiCat - Funding for immediate relief efforts after disasters
Solution features
 Insured perils: Earthquake and hurricane
 Payments to be used for immediate emergency relief after a
disaster
 Parametric catastrophe bond: USD 290 million
 Trigger type: Index
– Earthquake: physical trigger (quake magnitude)
– Hurricane: physical trigger (barometric pressure)
 Time horizon: October 2009 – October 2012
 1st cat bond launched through the World Bank’s new
MultiCat facility and second cat bond for Mexico
Involved parties
 Insured: Fund for Natural Disasters (FONDEN) of Mexico
 Arranger: World Bank Treasury
 Swiss Re: Co-lead manager and joint bookrunner
Swiss Re Global Partnerships | February 2012
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 21

22. Case study Caribbean:
Caribbean Catastrophe Risk
Insurance Facility (CCRIF)
Solution features
 The CCRIF offers parametric hurricane and earthquake insurance
policies to 16 CARICOM governments
 The policies provide immediate liquidity to participating
governments when affected by events with a probability of 1 in 15
years or over
 Member governments choose how much coverage they need up
to an aggregate limit of USD 100 million
 The mechanism will be triggered by the intensity of the event
(modelled loss triggers)
 The facility responded to events and made payments:
– Dominica & St. Lucia after earthquake (2007)
– Turks & Caicos after Hurricane Ike (2008)
– Haiti , Barbados, St. Lucia, Anguilla and St. Vincent (2010)
Involved parties
 Reinsurers: Swiss Re and other overseas reinsurers
 Reinsurance program placed by Aon Benfield Ltd.
 Derivative placed by World Bank Treasury
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 22

23. Case study United States:
Alabama – First parametric transaction for a
government in an industrialized country
Solution features
 Insured peril: Hurricane
 Payments to offset economic costs of hurricanes
 Parametric insurance: Transaction size not disclosed
 Trigger type: Disaster occurring within a defined box along
coast (“Swiss Re Parametric CAT™”)
– Trigger based on the maximum sustained wind
speed of hurricane as the center passes through the
box
 Time horizon: July 2010 – July 2013
 1st parametric catastrophe risk transfer for a government
in an industrialized country
Involved parties
 Insured: State Insurance Fund of Alabama
 Swiss Re: Lead structurer and sole underwriter
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 23

24. Case study United States:
University of Texas – Custom multi-year structured cover
for public university
Solution features
 Insured peril: Hurricane
 Multi-year Aggregate Cover: USD 50m
 Covering indemnified losses from hurricane to soften impact
to broader University system
– 3 year coverage with mandatory reinstatement
– No claims bonus
 Time horizon: April 2012– March 2015
 Customized multi-year structured risk transfer for major
public university
Involved parties
 Insured: University of Texas Medical Branch
 Swiss Re: Lead structurer and underwriter
 Broker: Beecher Carlson
M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 24

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M. Linkin | Building a Resilient New Jersey Shore | 7 December 2012, Monmouth University 25