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World Bank may offer cat pool assistance

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BUCHAREST, Romania—In a new role for the World Bank, the international organization is exploring ways to become a provider of risk management and insurance solutions to help developing countries manage catastrophic risks.

One option under consideration is the creation of a global reinsurance facility--a global risk pooling solution made available to its 184 member countries.

The idea, though, is not to "crowd out the reinsurance market," said Eugene Gurenko, lead insurance and risk management specialist at the World Bank in Washington. "It is really a facility to facilitate government access to reinsurance markets," he said.

The global reinsurance pool was mentioned in a speech by Mr. Gurenko at the International Catastrophic Risks Forum in Bucharest, Romania, last week.

Since the bank has developed expertise in assisting some countries in managing their catastrophic risks, the intention now is to see how to "streamline this type of assistance by providing global products," said Mr. Gurenko, elaborating on the bank's initiative in an interview. For example, the organization has assisted the government of Romania with the creation of a government-backed catastrophe pool.

In the past, the World Bank's role has been mostly that of a lender--a business model that has not changed much over the last 60 years, Mr. Gurenko said.

However, capital markets now are providing most of the financial resources to developing countries. "So, for the middle-income countries who are the key shareholders of the bank, they really would like to see the World Bank being the provider of risk management and insurance services as well as being a sovereign lender," he said.

The concept was endorsed by members last month at the World Bank's annual meeting in Singapore. Emphasizing that the mechanism for such a project is a "work in progress," Mr. Gurenko said the goal is to present a formal proposal to members at the bank's next annual meeting in the fall of 2007.

Regarding the possibility of a global reinsurance facility, Mr. Gurenko said it is similar to the concept of a catastrophe bond. But rather than being provided directly by capital market investors, it would be provided by the facility, which in turn would reinsure itself through the capital markets or reinsurance.

"It would be a special facility for governments, and maybe government-backed insurance schemes, to get additional capacity for dealing with catastrophe risk," he said.

"It is really a way to bring the reinsurance market and the governments of the world closer so that private risk capital becomes, I would say, more available to fund the risk of national disasters in emerging markets." It would also reduce costs for many emerging markets, he added.

Considering the banks work in helping countries deal with catastrophic risk, "it makes sense for me to hear that they are now developing a tool that could be applicable, at least in theory, to all the emerging countries," said Alberto Monti, an associate professor of comparative law at Bocconi University in Milan, Italy. He is also a consultant at the Paris-based Organization for Economic Co-operation and Development's financial affairs division.