WASHINGTON—Creation of the world's first multinational catastrophe insurance pool will help countries in the Caribbean--an area hit by one major hurricane about every two years--receive cash quickly to recover from devastation left by hurricanes and earthquakes.

In a Washington kickoff last week hosted by the World Bank Group on behalf of 18 Caribbean nations, backers hailed the Caribbean Catastrophic Risk Insurance Facility to backstop the countries, many of which are financially unable to rebuild following a disaster.

For example, when Hurricane Ivan struck the region in 2004, it caused nearly $890 million in damage--double that of Grenada's annual gross domestic product, the World Bank noted.

The goal of CCRIF, which backers described as the first regional disaster insurance facility in the world, is to provide "access to catastrophe risk insurance that would otherwise not be available to Caribbean governments," Keith Mitchell, prime minister of Grenada, said in a statement. "The fact that 18 countries have agreed to participate speaks volumes about the necessity for this facility."

CCRIF is seeking incorporation as a special-purpose vehicle in the Cayman Islands and plans to operate like a mutual insurance company, said Olivier Mahul, senior insurance specialist in Washington for the World Bank.

Jamaica-based CGM Group has been appointed to oversee CCRIF and advise on risk transfer strategies.

Sagicor Financial Corp. in the Cayman Islands has been appointed captive manager for the facility.

Much like a business interruption policy, Caribbean governments can purchase catastrophe coverage with claims being paid based on a parametric index linked to the intensity of an event rather--not specific losses.

Participating countries must pay an entrance fee equal to one year's premium at the time of joining the facility.

By pooling their risks into a single, larger and more diversified risk portfolio, participating countries can cut their premiums by up to 40%, the World Bank said.

Premiums, which will vary based upon each country's risk profile, start at $200,000 per year with $50 million in limits for each insured hazard.

The facility intends to retain part of its risk, having raised $47 million from donors that include governmental agencies in Bermuda, Canada, France and the United Kingdom; the Barbados-based Caribbean Development Bank; and the World Bank. The funds will be used to pay setup costs and reinsurance, among other expenses.

The CCRIF is seeking $80 million to $100 million of reinsurance, but the facility also could seek securitization through the capital markets, said the World Bank's Mr. Mahul.

In the event a country chooses to exit the risk pool--or defaults on its annual risk premium--that country would lose its coverage and the premium for the remaining countries would need to be readjusted. Remaining countries' premiums could be increased, although reserves may offset some of the rise.

The World Bank has pledged $27 million to finance premiums for three years for selected countries--most likely Dominica, Grenada, St. Lucia and St. Vincent, Mr. Mahul said.

Looking to the future

While only sovereign governments can access coverage through CCRIF, it could at a later date open to domestic insurers seeking catastrophe reinsurance, officials said.

Additionally, CCRIF will act as a pilot project for possible replication by other regions such as the Pacific Basin.

The 18 countries that have signed up for CCRIF include Anguilla, Antigua and Barbuda, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, the Cayman Islands, Dominica, Grenada, Haiti, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago, and Turks and Caicos Islands (see map, previous page).

The facility is expected to offer coverage before the start of the Atlantic hurricane season in June.