Natural Disaster Risk Financing and Transfer in ASEAN Countries

2020 ◽  
Author(s):  
Paul Raschky ◽  
Sommarat Chantarat
Keyword(s):  
Financial Risk ◽  
Ad Hoc ◽  
Large Fraction ◽  
Risk Modeling ◽  
Risk Transfer ◽  
Multilateral Cooperation ◽  
Asean Countries ◽  
Transfer Mechanisms ◽  
Financial Losses ◽  
Disaster Risk Financing

ASEAN countries are frequently hit by a variety of natural disasters, and a large fraction of economic activity in ASEAN countries is located in areas exposed to these natural perils. Increasing disaster damages require ASEA countries to manage the financial losses in a more efficient and proactive manner. Currently, most risk-transfer mechanisms in this region rely on ad-hoc government relief, which is not sustainable. Multilateral cooperation in the areas of risk-modeling and mapping as well as joint efforts to establish financial risk-transfer solutions could help to overcome existing challenges in this area.

Developing resilience to hydrologic extremes in irrigated agriculture through risk transfer mechanisms in the context of southeastern Brazil

2021 ◽  
Author(s):  
Marcos Roberto Benso ◽  
Gabriela Chiquito Gesualdo ◽  
Eduardo Mario Mendiondo ◽  
Lars Ribbe ◽  
Alexandra Nauditt
Keyword(s):  
Climate Change ◽  
Land Use ◽  
Crop Yield ◽  
Cash Flow ◽  
Synthetic Data ◽  
Southeastern Brazil ◽  
Irrigated Agriculture ◽  
Risk Transfer ◽  
Hydrologic Extremes ◽  
Transfer Mechanisms

<p>In the last decades, we have witnessed increasing losses on crop yield due to an increase in magnitude and frequency of hydrological extremes such as droughts and floods. These hazards promote systematic and regressive impacts on the economy and human behavior. Risk transfer mechanisms are key to cope with the economic impacts of these events, therefore safeguarding income to farmers and building resilience to the overall sector. The index-based insurance establishes an index that can be monitored in real or near-real-time, which is associated with losses to a specific agent. While the manifestation of the causality hazard to exposure and exposure to damage and its mathematical representation in cash flow equations is a hard task, incorporating an objective and transparent index adds up a new challenge to this modeling framework. Moreover, past events that have been used as the main guide to evaluating expected losses given risk can no longer offer an accurate risk estimation due to environmental changes. This work aims to tackle the hydrologic extremes risk transfer modeling in irrigated agriculture to obtain optimized premium values and parameters of an insurance fund for irrigated agriculture in Southeastern Brazil. This study will be developed in the Piracicaba, Jundiaí, and Capivari river basin, also known as PCJ catchment in the states of São Paulo and Minas Gerais, Brazil. The region, with approximately 5 million inhabitants, is considered one of the most important in Brazil due to its economic development, which represents about 7% of the National Gross Domestic Product (GDP). The Hydrologic Risk Transfer Model of the Hydraulic and Sanitation department of the University of São Paulo (MTRH-SHS) will be used to obtain optimized premium values. The main index variable is streamflow fitted to extreme value theory distribution for low and high flows. To evaluate climate change and land-use change scenarios, Regional Climate Models (RCMs) and land use projections will be related to streamflow in a hierarchical Bayesian framework. Synthetic data will be then simulated according to scenarios previously defined in a Monte Carlo approach. The hazard-damage function will be obtained by total crop yield and revenue per municipality, then the relationship between the index and expected losses is determined in an empirical equation. Finally, a cash flow computation is run with synthetic data obtaining optimized premiums in a way to minimize fund storage values. We expect to provide further evidence of the feasibility of actuarially fair premium values for the agents in the sector considering global phenomena of climate change and land-use change. Results will support climate change adaptation plans and policy as well as contribute to methods for estimating risk in a changing environment.</p>

scholarly journals THE MECHANISM OF DIVERSIFICATION OF FINANCIAL RISKS AND THEIR ASSESSMENT

2021 ◽  
Author(s):  
Viacheslav Dereza
Keyword(s):  
Financial Risk ◽  
Statistical Data ◽  
Production Cycle ◽  
Financial Risks ◽  
Economic Entity ◽  
The Subject ◽  
Lending Rates ◽  
Financial Losses ◽  
Level Of Risk

The article discusses approaches to minimizing financial losses by diversifying financial risks, it is proposed to improve the mechanism for diversifying financial risks, which should consist of the following stages: 1) Formation by the financial and economic department of the subject (enterprise, bank, investment company, etc.) of the input data, depending on the type of activity, among which the most typical are: volumes and structure of credit resources, their price, borrowing terms, loan currency, volumes and structure of product exports and imports of goods, export and import currencies, duration of the production cycle, volumes and structure of securities portfolio, types of securities, profitability indicators, types and the level of expenses. 2) Determination of the types of financial risks faced by an economic entity, and its measurement for each type, as well as the level of losses suffered by an economic entity in previous periods, in order to assess the feasibility of diversifying financial risks. 3) Determination of the most effective diversification options for an economic entity by comparing the costs of implementing possible options and the resulting from diversification by reducing the level of risk. 4) Assessment of other options for minimizing losses from financial risks that the entity can apply and which can be grouped as follows: hedging risks, limiting and compensating risks. 5) Calculation of financial implications for an economic entity from the introduction of financial risk diversification To do this, it is necessary to compare the costs and the expected effect of diversification, that is, will the level of risk decrease, or what will be the maximum possible financial losses. Calculated on the basis of statistical data, the values of the coefficient of variation of deposit and lending rates, as well as the exchange rate of UAH to foreign currencies. A methodology for assessing the level of possible financial losses and the effectiveness of the process of diversifying financial risks is proposed. The introduction of a mechanism for diversifying financial risks will help reduce financial losses by economic entities, which in turn will improve the overall financial results of their activities.

Blockchain analytics for intraday financial risk modeling

2019 ◽  
Vol 1 (1-4) ◽  
pp. 67-89 ◽  
Author(s):  
Matthew F. Dixon ◽  
Cuneyt Gurcan Akcora ◽  
Yulia R. Gel ◽  
Murat Kantarcioglu
Keyword(s):  
Financial Risk ◽  
Risk Modeling

Crystal balls and current affairs: the financial challenge of a changing climate to the oil and gas industry

2015 ◽  
Vol 55 (2) ◽  
pp. 490
Author(s):  
Adam Davis
Keyword(s):  
Large Scale ◽  
Ad Hoc ◽  
Climate Models ◽  
Oil And Gas ◽  
Insurance Industry ◽  
Cost Effective ◽  
Oil And Gas Industry ◽  
Capital Allocation ◽  
Risk Transfer ◽  
Changing Climate

Despite debate, the fact remains that the climate is changing. When considering the factors that determine potential financial impacts and losses that upstream oil and gas business could suffer due to a changing climate, the issues may primarily appear to be related to weather and geography. On closer examination, the factors that determine the severity of the impacts and losses are largely determined by the design and interdependencies of the financial and economic mechanisms of risk management. There is an increasing consensus in the insurance industry that the challenge presented by climate change, along with the increasing power of climate models, will result in far-reaching changes to the presently accepted practices of risk transfer. This extended abstract describes the increased power of climate models and the improved understanding of the present levels of under-adaptation when viewed from the position of investors in large-scale and long-lived oil and gas assets in Australia. It then looks at risk transfer models and examines potential limitations that have been identified due to the focus on ad-hoc post-disaster recovery when compared to a cost-effective pre-disaster resilience approach. The extended abstract then discusses how changes in the risk transfer approach could affect the financial aspects of an oil and gas business, such as the cost of borrowing, self-insurance, capital allocation and planning.

scholarly journals Economic Risks of Aflatoxin Contamination in Marketing of Peanut in Benin

2012 ◽  
Vol 2012 ◽  
pp. 1-12 ◽  
Author(s):  
C. Bley N'dede ◽  
C. M. Jolly ◽  
Simplice D. Vodouhe ◽  
P. E. Jolly
Keyword(s):  
Financial Risk ◽  
Aspergillus Parasiticus ◽  
Aflatoxin Contamination ◽  
Financial Risks ◽  
Market Participants ◽  
Study Results ◽  
Trading Decisions ◽  
And Storage ◽  
Marketing Chain ◽  
Financial Losses

Aflatoxin (AF) is a human health, nutrition, and financial risk to many people in the developing world. AF contamination in peanut is caused by the fungi: Aspergillus flavus and Aspergillus parasiticus. AF is a potent carcinogenic toxin that also causes millions of dollars of financial losses to people in Africa. The fungus producing the AF can be reduced to an acceptable level by proper drying, sorting, storage, and cleaning of peanut. Government intervention and regulation can also encourage market participants to reduce AF contamination. In this paper, we examine the financial risk associated with sorting, and storing of peanut and peanut products along the marketing chain. Study results show that the prices paid for peanut, prices received, the costs of sorting and storage are dominant factors in reducing AF levels in peanut. Practices such as drying, sorting, and storing, however, pose financial risks to market traders of peanut. Unless government intervenes by requesting an AF-reduced peanut and provides assistance for market liberalization where market participants consider quality in trading decisions, suppliers of peanut will be reluctant to adopt AF-reducing techniques.

scholarly journals Design of parametric risk transfer solutions for volcanic eruptions: an application to Japanese volcanoes

2021 ◽  
Vol 21 (1) ◽  
pp. 99-113
Author(s):  
Delioma Oramas-Dorta ◽  
Giulio Tirabassi ◽  
Guillermo Franco ◽  
Christina Magill
Keyword(s):  
Financial Risk ◽  
Volcanic Eruptions ◽  
Transfer Mechanism ◽  
Column Height ◽  
Regional Government ◽  
Building Structures ◽  
Risk Transfer ◽  
Natural Catastrophes ◽  
Ash Fall ◽  
Eruptive Column

Abstract. Volcanic eruptions are rare but potentially catastrophic phenomena, affecting societies and economies through different pathways. The 2010 Eyjafjallajökull eruption in Iceland, a medium-sized ash-fall-producing eruption, caused losses in the range of billions of dollars, mainly to the aviation and tourism industries. Financial risk transfer mechanisms such as insurance are used by individuals, companies, governments, etc., to protect themselves from losses associated with natural catastrophes. In this work, we conceptualize and design a parametric risk transfer mechanism to offset losses to building structures arising from large, ash-fall-producing volcanic eruptions. Such a transfer mechanism relies on the objective measurement of physical characteristics of volcanic eruptions that are correlated with the size of resulting losses (in this case, height of the eruptive column and predominant direction of ash dispersal) in order to pre-determine payments to the risk cedent concerned. We apply this risk transfer mechanism to the case of Mount Fuji in Japan by considering a potential risk cedent such as a regional government interested in offsetting losses to dwellings in the heavily populated prefectures of Tokyo and Kanagawa. The simplicity in determining eruptive column height and ash fall dispersal direction makes this design suitable for extrapolation to other volcanic settings worldwide where significant ash-fall-producing eruptions may occur, provided these parameters are reported by an official, reputable agency and a suitable loss model is available for the volcanoes of interest.

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