94984 SAMOA Country Note PCR AFI 2015 SAMOA February 2015 Disaster Risk Financing and Insurance © 2015 International Bank for Reconstruction and Development / International Development Association or The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions ** ** The material in this work is subject to copyright. 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Samoa PCRAFI i Table of Contents 01 Acknowledgments 02 Acronyms and Abbreviations 03 Executive Summary 04 Introduction 06 Economic Impact of Natural Disasters 08 Public Financial Management of Natural Disasters 08 Post-Disaster Budget Mobilization 13 Post-Disaster Budget Execution 15 Domestic Catastrophe Risk Insurance Market 17 Options for Consideration 18 End Notes 19 References 20 About PCRAFI 21 Annex 1 28 Annex 2 ii PCRAFI Samoa Table of Contents 29 Annex 3 29 Executive Summary 30 Insurance Market Overview 35 Insurance of Public Assets 37 Options for Consideration 37 References 39 Annex 4 Samoa PCRAFI 01 Acknowledgments This note has been prepared by a team led (SPC) through its Applied Geoscience and by Olivier Mahul (Disaster Risk Financing and Technology Division (SOPAC), the World Bank, Insurance Program Manager, World Bank) and and the Asian Development Bank, with financial comprising Samantha Cook (Financial Sector support from the government of Japan and the Specialist) and Barry Bailey (Consultant). Global Facility for Disaster Reduction and Recovery (GFDRR). The team gratefully acknowledges the data, information, and other invaluable contributions The Disaster Risk Financing and Insurance Program made by the Pacific Island Countries. Without their is grateful for the financial support received from skills and expertise, the compilation of this note the government of Japan and the Global Facility would not have been possible. for Disaster Reduction and Recovery. This note benefitted greatly from the technical expertise of the following persons: Franz Drees- Gross (Country Director Timore-Leste, Papua New Guinea. and Pacific Islands, World Bank), Olivier Mahul (Disaster Risk Financing and Insurance Program Manager, World Bank), Denis Jordy (Senior Environmental Specialist, World Bank), Michael Bonte-Grapentin (Senior Disaster Risk Management Specialist, World Bank), Paula Holland (Secretariat of the Pacific Community), and David Abbott (Secretariat of the Pacific Community). Inputs and reviews from Robert Utz, David Knight, Kim Edwards, Oscar Ishizawa, Rashmin Gunasekera, Keren Charles, Francesca de Nicola and Susann Tischendorf greatly enhanced the final note. Design and layout developed by Bivee.co. Section The Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) is a joint initiative between the Secretariat of the Pacific Community A 02 PCRAFI Samoa Acronyms and Abbreviations CBS Central Bank of Samoa SPREP Secretariat of the Pacific Regional Envi- DMO Disaster Management Office ronment Programme DRFI disaster risk financing and insurance TC Tropical Cyclone EPC Electric Power Corporation UNDP United Nations Development Pro- ERTF Emergency Response Trust Fund gramme GDP gross domestic product UNISDR United Nations International Strategy GFS Government Financial Statistics for Disaster Risk Reduction GIICS Group of International Insurance Cen- ter Supervisors Currency: Samoan Tala (SAT) HFA Hyogo Framework for Action Average exchange rate: US$1=SAT 2.3 IAIS International Association of Insurance Supervisors ISR Industrial Special Risks JNAP Joint National Action Plan MoF Ministry of Finance NAP National Action Plan NPI National Pacific Insurance PCRAFI Pacific Catastrophe Risk Assessment and Financing Initiative PIC Pacific Island Country RFA Regional Framework for Action SIDS Small Island Developing States SIFA Samoa International Finance Authority SOPAC Applied Geoscience and Technology Division of SPC Section SPC Secretariat of the Pacific Community A Samoa PCRAFI 03 Executive Summary In 2012 Tropical Cyclone (TC) Evan offered a Samoa has several disaster risk financing /// distressing reminder of Samoa’s exposure to natural and insurance (DRFI) tools in place and is hazards. TC Evan came only three years after the able to reallocate resources swiftly following earthquake and tsunami of 2009, which affected an event. However, there is some confusion /// 2.5 percent of the country’s population, causing surrounding the correct post-disaster finance 143 fatalities and associated economic losses policies among Ministry of Finance (MoF) staff. At present these policies are spread across a variety equivalent to 20 percent of gross domestic product of documents. This has resulted in delays in (GDP). procurement and inefficient allocation of human The economic growth of Samoa has been /// resources. It is recommended that post-disaster impacted in the past few years by two major policies be compiled into a single document for disasters: the tsunami in 2009 and TC Evan post-disaster budget mobilization and execution to in 2012. Growth was also impacted by the global /// avoid problems in the future. financial crisis. Overall GDP contracted by 5.1 A number of options to improve the existing /// percent following the tsunami in 2009, but it has DRFI measures have been presented for gradually increased in subsequent years. Following consideration: /// TC Evan, real GDP declined by 0.4 percent. Growth in GDP rebounded to 2.2 percent in 2013/14 as (a) develop an overarching disaster risk financing strategy aligned to existing processes; the reconstruction program commenced (World Bank 2014). (b) develop an operations manual detailing the processes required to facilitate swift post- Samoa is expected to incur, on average over disaster budget mobilization and execution; /// the long term, about SAT 23 million (US$10 and million) per year in losses due to earthquakes and tropical cyclones. In the next 50 years, /// (c) develop an insurance program for key public Samoa has a 50 percent chance of experiencing a assets. loss exceeding SAT 255 million (US$110 million) and a 10 percent chance of experiencing a loss exceeding SAT 812 million (US$350 million) Section (PCRAFI, Country Risk Profile). A 04 PCRAFI Samoa Introduction Samoa is composed of two large volcanic islands subregional, and international level, including (Upolu and Savai’i) and several smaller islands, the following: and has a total land area of approximately 2,935 • Hyogo Framework for Action (HFA) 2005–2015 km2. The resident population of Samoa for 2013 was estimated at 190,652, with 80 percent of this • Pacific Disaster Risk Reduction and Disaster number living in rural areas. 1 Management Framework for Action (Regional Framework for Action, or RFA) 2005–2015 Samoa is exposed to tropical cyclones, floods, earthquakes, tsunamis, volcanic eruption, and • Samoa’s National Disaster Management Plan drought. Samoa was ranked 51st out of 179 2011–2014 countries in the Global Climate Risk Index 2012 report on who suffers most from extreme weather • Samoa National Action Plan (NAP) for Disaster Risk Management, 2011–2016 events (Harmeling 2012). Samoa’s National Disaster Management Plan In 2012 TC Evan offered a distressing reminder /// cites disaster-related financing as the role of of Samoa’s exposure to natural hazards. TC Evan the Ministry of Finance (MoF). Under reference came only three years after the earthquake and /// 17 in the plan, the MoF must coordinate the tsunami of 2009, which affected 2.5 percent of collection, allocation, and provision of monetary the country’s population, causing 143 fatalities aid to people affected by a disaster (GoS 2011a). and associated economic losses equivalent to 20 percent of gross domestic product (GDP). Disaster risk financing and insurance (DRFI) is /// a key activity of the HFA Priorities for Action The government of Samoa, in conjunction with 4 and 5.2 The HFA is a result-based plan of action the Secretariat of the Pacific Community Applied /// adopted by 168 countries to reduce disaster risk Geoscience and Technology Division (SPC-SOPAC), and vulnerability to natural hazards and to increase the Secretariat of the Pacific Regional Environment the resilience of nations and communities to Programme (SPREP), the United Nations disasters over the period 2005–2015. In the Pacific, Development Programme (UNDP) Pacific Centre, the HFA formed the basis for the development of and the United Nations International Strategy the Regional Framework for Action. for Disaster Risk Reduction (UNISDR) as well as Section other partners, has developed several institutional The RFA cites DRFI activities as a key national /// frameworks on disaster risk management and and regional activity. Theme 4 of the RFA— /// 01 climate change adaptation at the national, “Planning for effective preparedness, response Samoa PCRAFI 05 and recovery”—has an associated key national (d) self-retention, such as a contingency budget activity, “Establish a national disaster fund for and national reserves, to finance small but response and recovery.” Moreover, Theme 6 of recurrent disasters; the RFA—“Reduction of underlying risk factors”— (e) a contingent credit mechanism for less cites the development of “financial risk-sharing frequent but more severe events; and mechanisms, particularly insurance, re-insurance and other financial modalities against disasters as (f) disaster risk transfer (such as insurance) to both a key national and regional activity” (SOPAC cover major natural disasters. 2005). These regional implementation activities align with the three-tiered disaster risk financing This note aims to build understanding of the /// strategy promoted by the World Bank (and existing DRFI tools in use in Samoa and to described below). identify gaps where potential engagement could further develop financial resilience. /// The Pacific DRFI Program enables countries /// In addition, this note aims to encourage peer to increase their financial resilience against exchange of regional knowledge through dialogue natural disasters by improving their capacity /// on past experiences, lessons learned, and ways to to meet post-disaster funding needs without optimize the use of these financial tools, as well as compromising their fiscal balance. This program how these tools may affect the execution of post- is one application of the Pacific Catastrophe Risk disaster funds. Assessment and Financing Initiative (PCRAFI). The Pacific DRFI Program is built upon a three-tiered approach to disaster risk financing (figure 1). The different tiers align to the basic principles of sound public financial management, such as the efficient allocation of resources, access to sufficient resources, and macroeconomic stabilization. The three tiers acknowledge the different financial requirements associated with different levels of risk: Photo Credit /// /// Stefan Lins/Flickr bd 06 PCRAFI Samoa Economic Impact of Natural Disasters In 2012, the Global Climate Risk Index ranked /// equivalent to approximately four times GDP (GoS Samoa 51st out of 179 countries for extreme 2013). In comparison, the last major flood in 2001 weather event impacts (Harmeling 2012). /// caused direct losses worth SAT 11 million (GoS In the past 50 years Samoa has experienced 56 2013). events with associated losses of SAT 1,270 million The economic growth of Samoa has been /// (US$543 million).3 impacted in the past few years by two major disasters: the tsunami in 2009 and TC Evan The main hazards that affect Samoa are from in 2012. Growth was also impacted by the global /// tropical cyclones, earthquakes, tsunamis, and /// financial crisis. Overall GDP contracted by 5.1 occasional flooding. In 1990, Tropical Cyclones percent following the tsunami in 2009 but has /// (TCs) Ofa and Val caused estimated total loss of gradually increased in subsequent years. Following between SAT 690 and SAT 1,150 million (US$300 TC Evan, real GDP declined by 0.4 percent. Growth million–US$500 million) (PCRAFI, 2012), which is Figure 1 —  Land Use/Land Cover 172˚ 45'0"W 172˚ 30'0"W 172˚ 15'0"W 172˚ 0'0"W 171˚ 45'0"W 171˚ 30'0"W 13˚ 15'0"S Samoa 0 10 20 40 Kilometers Buildings 13˚ 30'0"S 13˚ 30'0"S Residential Commercial Industrial Apia Public 13˚ 45'0"S 13˚ 45'0"S Other 0 1 2 4 Section Kilometers Apia 14˚ 0'0"S 14˚ 0'0"S 02 14˚ 15'0"S Source: PCRAFI 2012. 172˚ 45'0"W 172˚ 30'0"W 172˚ 15'0"W 172˚ 0'0"W 171˚ 45'0"W 171˚ 30'0"W Samoa PCRAFI 07 Figure 2 —  Direct Losses by Return Period 600 DIRECT LOSSES (MILLION USD) TC + EQ 500 TC 400 EQ 300 200 100 Source: PCRAFI 2012 0 Note: TC = tropical cyclone; EQ = earthquake 0 100 200 300 400 500 600 700 800 900 1000 MEAN RETURN PERIOD (YEARS) in GDP rebounded to 2.2 percent in 2013/14 as and tropical cyclones. In the next 50 years, /// the reconstruction program commenced (World Samoa has a 50 percent chance of experiencing a Bank 2014). loss exceeding SAT 255 million (US$110 million), and a 10 percent chance of experiencing a loss Tourism is a major economic driver and has exceeding SAT 812 million (US$350 million) (see /// increased the concentration of assets along figure 3). Samoa’s coastline, where the majority of the population resides. Figure 2 shows that the /// Figure 4 shows the average annual loss by area, majority of buildings, residential and commercial, with red indicating a high level of average annual are located along the coastline. losses—those worth SAT 5.5 million (US$2.4 million) and over. Samoa is expected to incur, on average over /// the long term, about SAT 23 million (US$10 million) per year in losses due to earthquakes Figure 3 —  Average Annual Loss by Area 172°45'0"W 172°30'0"W 172°15'0"W 172°0'0"W 171°45'0"W 171°30'0"W 13°15'0"S Samoa 0 10 20 40 Kilometers 13°30'0"S 13°30'0"S Apia 13°45'0"S 13°45'0"S Section 14°0'0"S 14°0'0"S Building Replacement Cost Density (million USD / km^2) 0.0 - 0.1 0.1 - 0.25 0.25 - 0.5 0.5 - 0.75 0.75 - 1 1-5 5 - 10 10 - 20 02 14°15'0"S Source: PCRAFI 2012 172°45'0"W 172°30'0"W 172°15'0"W 172°0'0"W 171°45'0"W 171°30'0"W 08 PCRAFI Samoa Public Financial Management of Natural Disasters Following the declaration of a state of /// (a) the ability to rapidly mobilize funds post- emergency, staff from the Ministry of Finance disaster, and are relocated to the Disaster Management (b) the ability to execute funds in a timely, Office (i) or the National Emergency Operation transparent, and accountable fashion. Centre. This change is to help ensure that /// procurement of emergency supplies occurs as This section discusses the existing procedures for quickly as possible. For expenditures agreed upon post-disaster budget mobilization and execution, by the National Disaster Council, emergency and where possible provides examples of their use. procurement policies allow for payments to be made to contractors within one week, as opposed to the standard term of 30 days. Post-Disaster Samoa has experienced two major disasters /// Budget Mobilization within a three-year period, the tsunami in Samoa has a variety of ex-ante and ex-post 2009 and TC Evan in 2012. These events placed /// financial tools, and the timing for mobilizing /// considerable pressure on core government staff, and executing these funds varies significantly. /// in particular in the DMO and the MoF. As a Building on the World Bank framework for disaster result of these events, however, the policies and risk financing and insurance (see annex 1), table processes for DRFI have been tested—and found to 1 shows the ex-ante and ex-post financial tools be effective. available, indicates which have been utilized by Samoa, and gives indicative timings. The tools Effective post-disaster financial response relies on utilized by Samoa are highlighted in blue and two fundamental capabilities: Section show the indicative timing involved in mobilizing the funds. Those sections highlighted in gray are 03 Samoa PCRAFI 09 for generic instruments that to date have not been Emergency fund used in Samoa. Following a declaration of emergency, an /// The sections below discuss in detail both the emergency fund can be established to receive ex-ante and the ex-post financing tools available any monies reallocated from the government /// to Samoa, including the time it takes to mobilize as well as donations from the international these funds and the amount of funding available. community, private enterprises, and members of the public. This was the process following the Ex-Ante Practices and Arrangements tsunami in 2009 and TC Evan in 2012. The uncertainty surrounding international The establishment of an emergency fund /// assistance has increased pressure on countries is requested by the Disaster Advisory to establish domestic sources of financing—such Committee and is authorized by the financial as national reserves or the transfer of risk to the secretary. Section 61 of the Public Finance /// international insurance market—for post-disaster Management Act requires the source of finance, relief. The ex-ante practices and arrangements that signatories, and expenditure areas to be assigned have been made by Samoa include an emergency in advance in order to prevent misuse of the funds. fund, a contingency budget, and sovereign catastrophe risk insurance. Table 1—  Sources of Funds Available SHORT TERM MEDIUM TERM LONG TERM (1-3 MONTHS) (3-9 MONTHS) (OVER 9 MONTHS) Ex-post Financing Donor Assistance (relief) Budget Reallocation Domestic Credit External Credit Capital Budget Realignment Donor Assistance (reconstruction) Tax Increae Flash Appeal Ex-ante Financing Emergency Fund Contingency Budget Contingent Credit Sovereign (parametric) Catastrophe Risk Insurance Section Traditional Disaster Insurance 03 Source: Government of Samoa 10 PCRAFI Samoa Box 1—  The Pacific Catastrophe Risk Insurance Pilot The Pacific Catastrophe Risk Insurance Pilot aims to provide /// government in the aftermath of a severe natural disaster that disrupts the immediate budget support following a major tropical cyclone or provision of government services. Countries can choose between three earthquake/tsunami. The insurance is designed to cover emergency /// layers of coverage—low, medium, and high—depending on the frequency losses, which are estimated using both a modeled representation of the of events. The lower layer will cover events with a return period of 1 in 10 event based on hazard parameters and a calculation of total modeled years, that is, more frequent but less severe events. The medium layer will physical damage. Unlike a conventional insurance scheme, where a payout cover events with a 1-in-15-year return period, while the higher layer will would be assessed against actual incurred costs, this scheme pays out on cover less frequent but more severe events, or those with a return period the results of a model. The advantage of this approach is that it results in of 1 in 20 years. However, countries may request that a more customized a much faster payout. The payout would act as a form of budget support option be developed for them. and would go some way to cover the costs that would be incurred by the The emergency fund established in the /// 3 percent of the total appropriation bill, aftermath of TC Evan received SAT 5.1 million is available subject to Article 96 of the (US$2.2 million) in budgetary reallocation /// constitution. The release of funds for unforeseen /// from the unforeseen expenditure line following expenditure requires approval from the legislative a request from the National Disaster Committee. assembly4 following advice presented by the This fund was approved by the legislative authority, established, and disbursing funds within 24 hours Minister of Finance. In 2013 the maximum of the request from the committee. contingency budget would have been equivalent to SAT 16 million (US$7 million). According to Contingency budget estimates, there is a 7.2 percent chance that A contingency budget, known as the /// disaster losses will exceed this amount in any “unforeseen expenditure” equivalent to given year. Table 2—  Selected Insurance Coverage, 2014–2015 Pilot Season TROPICAL CYCLONE EARTHQUAKE Policy period November 1, 2013–October 31, 2014 Peril selected Tropical cyclone Earthquake Layer of coverage selected 1 in 20 years 1 in 20 years Coverage limit as a percentage of 137 percent 89 percent contingency budget Reporting agencies Joint Typhoon Warning Center United States Geological Survey Section Source: World Bank and PCRAFI 2014. 03 Samoa PCRAFI 11 Sovereign catastrophe risk insurance Budget reallocation The coverage selected by Samoa provides an /// Intradepartmental transfers can be made /// aggregate coverage limit worth more than following authorization from the head of double the unforeseen payments (contingency the department and the financial secretary. /// budget) for the fiscal year 2013/14 (see table 2). /// These transfers are allowed provided that the Samoa chose a level of coverage designed to pay transfer does not increase the appropriation for out for tropical cyclone and earthquake/tsunami that line item by 20 percent or more, and the events of such severity that a triggering event total appropriation for the department must would be expected to occur once every 20 years remain unaltered. on average, over the long term. The coverage is Following the declaration of a state of in effect from November 1, 2014, to October 31, /// emergency, the minister of finance may 2015. approve expenditure to help address needs Ex-Post Practices and Arrangements arising from the emergency. Any such /// expenditures must be published in Savai’i and By definition a disaster exceeds a country’s presented to the legislative assembly at the earliest capacity to cope with it, and there will therefore opportunity, although such expenditures do not always be a need for ex-post practices and require their approval. The expenses must also be arrangements. An optimal strategy for DRFI relies included in the annual financial statements. on a combination of ex-ante and ex-post financial instruments. Ex-post arrangements benefit from External credit being able to establish the extent of the disaster Both the fiscal deficit and public debt have and prioritize the response needs. For this reason /// increased following the 2009 tsunami and TC these arrangements take longer to implement than Evan in 2012. In the fiscal year 2008/09, Samoa ex-ante arrangements, but they can often mobilize /// had a debt-servicing ratio equivalent to 45.4 larger amounts of finance. This section discusses percent of GDP. In fiscal year 2011/12—prior to the ex-post practices and arrangements that have TC Evan—this ratio was trending upward to 57.6 been made by Samoa. percent of GDP and was expected to increase Photo Credit /// /// Kyle Post/Flickr b 12 PCRAFI Samoa further. The tsunami recovery program is being and organizations (GoS 2011b.). This serves to financed by grants, however, so this increase may demonstrate that while donor assistance for prove to be relatively small. reconstruction may take some time to mobilize, it allows significant amounts of finance to be raised. Following these events, the government of /// Samoa revised its targeted debt threshold Total Response Funds Available to 50 percent of GDP, placing restraints on any new borrowing. As a consequence the /// Samoa has the ability to raise a maximum /// International Monetary Fund and World Bank of SAT 47.1 million (US$20.5 million) for revised the risk of debt distress from low to disaster response, equivalent to 9 percent of moderate, a change that increases the urgency of total expenditures in 2013/14. This figure is /// fiscal consolidation (IMF 2012). based on the unforeseen expenditure allowance for the fiscal year 2013/14, the emergency fund Donor funds for relief established for TC Evan, and the aggregate and reconstruction coverage limit from the Pacific Catastrophe Risk Insurance Pilot (see figure 5). It should be While donor funds will always be required emphasized that this amount is a maximum; given /// in the event of an emergency, there is also the nature of the emergency fund process, there is an element of uncertainty surrounding an element of uncertainty surrounding how much how much will be provided, what will be could actually be made available. In other words, /// provided, and when funds will arrive in country. the SAT 5.1 million that the Government was able Consequently, overdependence on international to reallocate following TC Evan provides us with an relief as a source of post-disaster financing can indication of what can be made available. Similarly, delay the provision of initial relief and inhibit ex- the aggregate payout is the absolute maximum ante contingency planning. Development partners, that Samoa could receive following an earthquake/ international organizations, local nongovernmental tsunami or a tropical cyclone. It is estimated that organizations, businesses, and individuals there is a 2 percent chance that disaster losses will contribute in the form of cash grants and aid in exceed this amount in any given year. kind. The provision of aid in kind, while vital, can affect the costs borne by governments for the distribution these goods. In the month following TC Evan, Samoa /// received cash donations from the international community worth over SAT 4.8 million (US$2 million); in addition, the local and international community also donated significant supplies to help with initial relief. /// Experience shows that donations continue even after relief work ends and recovery and reconstruction programs begin. For example, the Section completion report for the tsunami fund states that SAT 62.4 million (US$26.7 million) was received 03 from development partners and private individuals Samoa PCRAFI 13 Post-Disaster the Asian Development Bank and the World Bank made loans for key infrastructure projects. Budget Execution Following the tsunami in 2009, the Central /// Following the experience of the 2009 tsunami, /// Bank of Samoa (CBS) established a credit the response to TC Evan was triggered quickly: facility of SAT 5 million for tourism-related finance was sourced and allocated within the loans. The Development Bank of Samoa oversaw /// first week. The MoF was able to reallocate SAT /// the day-to-day management of this facility. The 5.1 million (US$2.2 million) into an emergency aim was to expand fale (a traditional style of house fund and open a relief account for donations from in Samoa) businesses that could not be supported members of the public and private sector entities. via grants and other financial vehicles. Additional finance for the recovery and /// The government of Samoa financed /// reconstruction framework following TC Evan approximately 14 percent of the 2009 tsunami was sought via the reprogramming of funds, reconstruction program. A deficit of SAT 9.7 /// savings in the recurrent budget, and funding million (US$4.1 million) was identified and filled from development partners. While much of /// by the government to ensure continuation of the the funding from development partners was reconstruction program. This finance came from sought in grants, large amounts were also made the reprogramming of funds and was also partially available in loans. To facilitate reconstruction of sourced from World Bank and Asian Development major infrastructure such as roads and electricity, Bank budget support loans. Consequently, some Figure 4 —  Amount of Ex-Ante Funds Available for Immediate Response Disaster risk financing Amount of funds Disaster risks instruments available High-risk layer Total catastrophe risk (E.G. Major earthquake, Disaster risk insurance insurance coverage major tropical cyclone) SAT26m (US$11.3m) Medium-risk layer Contingent credit (E.G. Floods, small earthquakes) Unforeseen: Contingency budget, Low-risk layer SAT16m (US$7m) national reserves, annual (E.G. Localized flood, landslides) Emergency fund: budget allocation SAT5.1m (US$2.2m) Section Source: World Bank. 03 14 PCRAFI Samoa work continued into the 2011/12 budget for some sectors. Samoa has a proactive approach to DRFI /// and is able to reallocate resources swiftly following an event. However, there is some /// confusion surrounding the correct post-disaster finance policies among MoF staff. At present these policies are spread across a variety of documents. The result has been delays in procurement and inefficient allocation of human resources. To avoid these issues in future, it is recommended that post-disaster policies be compiled into a single document for post-disaster budget mobilization and execution. Photo Credit /// /// Simon Sees/Flickr b Samoa PCRAFI 15 Domestic Catastrophe Risk Insurance Market All classes of non-life insurance premium /// regulator. The CBS collects information to /// in Samoa are estimated to be worth SAT 41 ensure that solvency margins are met. It also million (US$17 million). This figure includes /// monitors accumulations for all classes and requests premiums for businesses placed with offshore information on reinsurance protection. insurers by locally licensed agents and brokers. International insurance companies registered The exact amount of premium for offshore-placed /// in Samoa are regulated by a separate body, insurance was not available from the CBS. the Samoa International Finance Authority The market is composed of four local insurers. /// /// (SIFA). SIFA is a member of the International /// While such a market would normally be classified Association of Insurance Supervisors (IAIS) and as small, insurance industry sources advised that the Group of International Insurance Center this market is in fact very competitive. Non-life Supervisors (GIICS). premium per capita is estimated at US$90.00, The Public Finance Management Act (2001), which is consistent with other developing Pacific /// Section 54, requires the government to Island Countries (PICs). establish an insurance fund and to pay There is legislation in place that regulates the /// insurance premiums out of this fund. The /// local insurance industry (the 2007 Insurance premiums for the existing property insurance Act), and the CBS acts as the insurance program are paid out of this fund. Photo Credit /// /// Philip Crapper/Flickr b 16 PCRAFI Samoa The main catastrophe hazard in Samoa is /// The government has a property insurance /// tropical cyclone. Insurers will insure only those /// program in place for major public buildings properties that meet the cyclone standard set on an indemnity value basis. At present there is /// out in the building code. Cyclone insurance is no insurance of key infrastructure assets, such as available as an extension of property policies only bridges or roads. after the engineer’s certification of compliance Public trading bodies make their own with the cyclone code has been received. The /// insurance arrangements, including property average premium rate for cyclone extension is /// insurance for key assets. These property insurance 0.20 percent of the total insured value. Based programs insure against earthquake, but the on estimates of insured-to-total losses in prior cyclone insurance extension is not always taken. major cyclone events, it is estimated that only 20 percent of businesses and 10 percent of residential Please refer to annex 3 for the full market premises have cyclone insurance. Earthquake as a insurance review that was conducted in Samoa peril is normally offered automatically on the full in 2013. sum insured. The average premium rate for the earthquake peril is 0.10 percent of total insured value, although there is some variation among insurers. Tsunami is included as an earthquake peril. Photo Credit /// /// Australian Department of Foreign Affairs and Trade/Flickr b Samoa PCRAFI 17 Options for Consideration Samoa has implemented several DRFI tools to Recommendation 2: Develop an operations /// improve its financial resilience to natural disasters. manual detailing the processes required However, the policies are spread throughout a to facilitate swift post-disaster budget variety of documents, and during a disaster staff mobilization and execution. This manual /// find it difficult to access needed information; would clearly document the post-disaster budget they often must rely on key staff to ensure the mobilization and execution procedures and correct policies are followed. The following processes for MoF staff. In addition, it could feature the disaster response plan for the MoF that recommendations for minimizing any potential loss is now required under the Disaster Management of institutional knowledge have been suggested Act. During a disaster it is important that staff for consideration. know and understand the correct procedures Recommendation 1: Develop an overarching /// to follow, and having a manual that details the disaster risk financing strategy aligned to processes in a single document would help to existing processes. Samoa has a proactive ex- /// embed existing processes such as the allocation of ante approach to DRFI. However, the activities a member of staff from MoF to the DMO. in place have been developed in isolation; while Recommendation 3: Develop an insurance /// some processes are documented, this information program for key public assets. This would /// can be difficult to find. One way to address this include a full review of the current insurance issue would be to develop an overarching DRFI program for the government by MoF. In addition, strategy for the Cabinet Development Committee it would identify assets to be included and indicate to endorse. This would create a single document appropriate coverage selection for these assets. to articulate the available financing options and The potential for establishing an insurance vehicle associated policies behind these tools. In addition, could also be investigated if deemed appropriate. an action plan for implementation activities is also recommended. Section 05 18 PCRAFI Samoa End Notes 1 Samoa Burea of Statistics, “Key Statistics,” http://www. sbs.gov.ws/index.php?option=com_content&view=arti- cle&id=35&Itemid=102. 2 Priority for Action 4—“Reduce the underlying risk factors”—has an associated key activity of financial risk-sharing mechanisms such as insurance, while Priority for Action 5—“Strengthen disas- ter preparedness for effective response at all levels”—includes the establishment of emergency funds such as a contingency budget. 3 Pacific Disaster Net - http://www.pacificdisaster.net/pdn2008/ 4 This is the equivalent of the cabinet in some countries. Section 05 Samoa PCRAFI 19 References GFDRR (Global Facility for Disaster Reduction and Recovery) SPC (Secretariat of the Pacific Community) 2011 Vanuatu: Invest- 2012 The Sendai Report: Managing Disaster Risks for Resilient ment in DRM, Suva, Fiji Future, Washington D.C., U.S.A. SPC (Secretariat of the Pacific Community) 2012 Papua New GoS (Government of Samoa). 2011a. “Samoa’s National Disaster Guinea: Investment in DRM, Suva, Fiji Management Plan 2011–2014.” Government of Samoa, Apia, UNISDR (United Nations International Strategy for Disaster Samoa. http://reliefweb.int/report/samoa/samoa-s-national-di- Reduction). 2005. Hyogo Framework for Action 2005–2015: saster-management-plan-2011-2014. Building the Resilience of Nations and Communities to Disas- ———. 2011b. “Post Tsunami (Samoa September 2009–June ters. UNISDR, Hyogo, Japan. 2011).” Government of Samoa, Apia, Samoa. World Bank 2010 Financial Protection of the State against Natural ———. 2013. Samoa Post-Disaster Needs Assessment Cyclone Disasters; A Primer, Washington D.C., U.S.A. Evan 2012. Apia, Samoa: Government of Samoa, Apia, Samoa. World Bank. 2014. “International Development Association Pro- gram Document for a Proposed Development Policy Grant.” S. Harmeling. 2012. “Global Climate Risk Index 2012: Who Suf- World Bank, Washington, DC. fers Most from Extreme Weather Events? Weather-Related Loss Events in 2010 and 1991 to 2010.” Briefing paper, German Watch, Bonn. IMF (International Monetary Fund). 2012. “Samoa 2012 Article IV Consultation.” IMF, Washington, DC. PCRAFI (Pacific Catastrophe Risk and Financing Initiative). 2012. “Country Risk Profile: Samoa.” [http://pacris.sopac.org](http:// pacris.sopac.org). SOPAC (Pacific Islands Applied Geoscience Commission). 2005. Pacific Disaster Risk Reduction and Disaster Management Framework for Action (Regional Framework for Action or RFA) 2005–2015. SOPAC, Suva, Fiji. SPC (Secretariat of the Pacific Community) 2011 Cook Islands: Investment in DRM, Suva, Fiji SPC (Secretariat of the Pacific Community) 2011 Fiji: Investment in DRM, Suva, Fiji SPC (Secretariat of the Pacific Community) 2011 Republic of Section Marshall Islands: Investment in DRM, Suva, Fiji 05 20 PCRAFI Samoa About PCRAFI The Pacific Catastrophe Risk Assessment and disaster risk financing strategy and focus on three Financing Initiative (PCRAFI) is a joint initiative core aspects: between the Secretariat of the Pacific Community • the development of a public financial through its Applied Geoscience and Technology management strategy for natural disasters, Division (SPC-SOPAC), the World Bank, and the recognizing the need for ex-ante and ex-post Asian Development Bank, with financial support financial tools; from the government of Japan, the Global Facility for Disaster Reduction and Recovery (GFDRR), and • the post-disaster budget execution process, the European Union, and with technical support to ensure that funds can be accessed and from Air Worldwide, New Zealand GNS Science, disbursed easily post-disaster; and and Geoscience Australia. • the insurance of key public assets, to resource The initiative aims to provide the Pacific Island the much larger funding requirements of Countries (PICs) with disaster risk modeling recovery and reconstruction needs. and assessment tools for enhanced disaster risk The PICs involved in PCRAFI are the Cook Islands, management, and to engage PICs in a dialogue the Federated States of Micronesia, Fiji, Kiribati, on integrated financial solutions to increase their the Marshall Islands, Nauru, Niue, Palau, Papua financial resilience to natural disasters and climate New Guinea, Samoa, the Solomon Islands, Timor- change. The initiative is part of the broader agenda Leste, Tonga, Tuvalu, and Vanuatu. on disaster risk management and climate change For further information, please visit adaptation in the Pacific region. http://pacrisk.sopac.org or contact PCRAFI@spc.int. The Pacific Disaster Risk Financing and Insurance (DRFI) Program is one of the many applications of PCRAFI. It is designed to increase the financial resilience of PICs by improving their capacity to meet post-disaster financing needs without compromising their fiscal balance. Through DRFI, technical assistance is available to PICs to build Section capacity in the public financial management of natural disasters. The technical assistance will build 06 on the underlying principles of the three-tiered 21 PCRAFI Samoa Annex 1 World Bank Framework for Disaster Risk Financing and Insurance Major disasters increase public spending development projects (see figure A.2). This layer requirements and reduce revenues, placing further uses tools such as contingency budgets and strain on limited national budgets. The immediate national reserves. The aim is to finance small and long-term fiscal consequences of a disaster but high-frequency disasters. The second layer is depend on the sources of revenue available to aimed at less frequent but more severe events that the government versus its public expenditure are too costly to pre-finance through retention commitments. Investment in disaster risk financing mechanisms. Here, liquidity mechanisms—such as instruments can help prevent the diversion of funds contingent credit, which can mobilize additional from key development projects and significantly funds immediately following an event—become reduce the time needed to activate an initial cost-effective. response. Financial protection is a core component of any comprehensive disaster risk management The third layer, disaster risk transfer (such as strategy, and should be implemented alongside insurance), focuses on mobilizing large volumes the pillars of risk identification, risk reduction, of funds for large but infrequent natural disasters. preparedness, and post-disaster reconstruction (see For events of this type, risk transfer instruments— figure A.1). such as insurance or catastrophe swaps and bonds—become cost-effective in averting a The World Bank framework for disaster risk liquidity crunch. financing and insurance advocates a three-tiered approach for the development of financing There is a clear time dimension to post-disaster arrangements to cover the residual disaster risk funding needs and the various phases of relief, that cannot be mitigated. These layers align to recovery, and reconstruction. Some financing the basic principles of sound public financial instruments can be activated rapidly. Others management, such as the efficient allocation may take longer to activate but can generate of resources, access to sufficient resources, and substantial funding. The disaster risk financing macroeconomic stabilization. The first layer, strategy needs to reflect both time and cost Section retention, relates to countries’ development of dimensions, ensuring that the volume of funding an internal layer of protection against natural available at different stages in the response efforts 07 disasters to prevent the diversion of funds from matches actual needs in a cost-efficient manner. Samoa PCRAFI 22 Figure A .1 —  Disaster Risk Management Framework PILLAR 1: RISK IDENTIFICATION Improved identification and understanding of disaster risks through building capacity for assessments and analysis PILLAR 2: RISK REDUCTION Avoided creation of new risks and reduced risks in society through greater disaster risk consideration in policy and investment PILLAR 3: PREPAREDNESS Improved capacity to manage crises through developing forecasting and disaster management capacities PILLAR 4: FINANCIAL PROTECTION Increased financial resilience of governments, private sector and households through financial protection strategies PILLAR 5: RESILIENT RECOVERY Quicker, more resilient recovery through support for reconstruction planning Figure A .2 —  Three-Tiered Disaster Risk Financing Strategy International Assistance Low Frequency/ High Severity Risk Transfer Sovereign Risk Transfer (e.g. Cat Bond/Cat Swap, (re)insurance) Insurance of Public Assets Contingent Credit Lines Post Disaster Credit Risk Retention High Frequency/ Low Severity Government Reserves, Contingency Budget / Funds Section 07 Emergency Funding Reconstruction 23 PCRAFI Samoa The initial relief phase requires a quick injection the funds for this phase can therefore be raised of liquidity from day 0 but does not need to be via post-disaster budget reallocation and the sustained for a long period of time (see figure realignment of national investment priorities. A.3). Rapid budget mobilization and execution However, the opportunity cost for these options are key for financing initial disaster response, and is high, given that they can lead to reduced governments should develop appropriate policies expenditure on other key investment areas, such as and procedures for procurement and acquittals health and education. Consequently, governments to facilitate them. Initial relief should be met via may also choose to utilize development partner annual budget allocations and the establishment contingent credit arrangements. of dedicated reserves for disaster response that can be accessed immediately; major catastrophes In contrast, the reconstruction phase has much will exhaust these funds quickly. The residual risk larger financing requirements needed over a associated with higher-cost events should be much longer period of time (see figure A.3). transferred to third parties via a mixture of more Given the large funding requirements associated expensive (re)insurance tools and catastrophe with reconstruction, this phase often requires bonds and, for the most extreme events, post-disaster reconstruction loans to complement international assistance. traditional disaster insurance. Governments The recovery phase requires additional funds may also introduce temporary post-disaster tax but not immediately (see figure A.3). Some of increases aligned to budget restructuring. Figure A .3 —  Post-Disaster Phases: Funding Requirements and Duration` Section 07 Samoa PCRAFI 24 If adequate and timely funding arrangements are innovative nature of the work in this area and the not in place, the adverse socioeconomic impact number of products under development, this list is of a disaster can be significantly exacerbated, at not exhaustive. both the macroeconomic and household levels. Ex-post financing vehicles are those that become An optimal disaster risk financing and insurance available in the wake of an event. The most strategy aims to combine ex-ante and ex-post familiar form of ex-post disaster financing is financial instruments to secure adequate and donor assistance for relief. There are two forms timely funding at lower cost for the successive this finance can take, cash grants and aid in kind, post-disaster phases. The optimal mix of finance and both play an important role in response. The instruments will be unique to each country based provision of aid in kind, while vital, can affect the upon its associated hazard and exposure. Table distribution costs for these goods. While donor A.1 lists potential finance instruments that can be funds will always be required, there can often be used to address disasters. Those that are shaded in an element of uncertainty surrounding how much blue indicate the generic timelines for mobilizing will be provided, what will be provided, and when and executing these funds, though each country funds will arrive in country. may be slightly faster or slower depending on its internal processes. The table can be adapted by Budget reallocation often plays a key role for the countries to reflect these differences according to continuation of relief and the initial stages of the the financial instruments they have utilized and the recovery program. Generally, this process takes time it takes to mobilize these funds. Given the time, as the reallocation of funds will need to be Table A .1—  Availability of Financial Instruments Over Time SHORT TERM MEDIUM TERM LONG TERM (1-3 MONTHS) (3-9 MONTHS) (OVER 9 MONTHS) Ex-post Financing Donor Assistance (relief) Budget Reallocation Domestic Credit External Credit Capital Budget Realignment Donor Assistance (reconstruction) Tax Increae Flash Appeal Ex-ante Financing Emergency Fund Contingency Budget Contingent Credit Sovereign (parametric) Catastrophe Risk Insurance Traditional Disaster Insurance Section Source: World Bank 2013. 07 25 PCRAFI Samoa agreed upon by the cabinet and across ministries. Donor assistance for reconstruction can be Budget reallocation can sometimes divert funds delivered as a form of direct budget support, from key development projects and hence seriously grant, or a post-disaster reconstruction loan. harm the long-term growth prospects of the The form of finance used here will depend on country. The same issues are relevant to capital the size of the event, the development status of budget realignment, although the timelines for a country (for example, low-income countries that process are typically significantly longer. may have access to concessional loans and have more access to grants), and the debt-servicing Domestic credit, such as the issuance of ratio of a country. Typically, this form of finance government bonds, can be used to raise additional is conditional and requires sufficient lead time for revenue to fund post-disaster expenditures. Again, aligning the priorities of countries and donors to due to the processes involved, domestic credit will meet reconstruction and recovery needs. take some time to operationalize and is best suited to financing recovery and reconstruction activities. Tax increases will help redress the increase in public External credit will likewise take time to be expenditure following a disaster by generating agreed upon with providers and will require clear additional revenue. Although higher taxes could articulation of the activities it is to finance. Both of be politically unfavorable, they create a sustainable Section these forms of credit will have an impact on the source of finance for reconstruction activities. debt-servicing ratio of a country and may not be a Conversely, some governments have applied tax 07 viable option for heavily indebted countries. incentives to encourage donations to response Samoa PCRAFI 26 funds from both the private sector and members of Parametric insurance uses hazard triggers, linking the public. This approach can be popular when tax immediate post-disaster insurance payouts credits are written off on annual tax returns. to specific hazard events. Unlike traditional insurance settlements that require an assessment Ex-ante financing provides an element of financial of individual losses on the ground, parametric certainty during a disaster, because governments policies do not pay based on actual losses incurred. have established these sources of finance in Instead, the payout disbursements are triggered advance. These funds can be quickly disbursed by specific physical parameters for the disaster following an event so that essential relief work (e.g., wind speed and earthquake ground motion). commences immediately. A reserve fund provides The payouts provide a rapid, yet limited, injection a dedicated amount of funding for response of liquidity that can be a valuable boost to and if properly managed can accrue over time to relief funds. increase the level of funding available. However, the opportunity cost of holding money in a Traditional disaster insurance offers indemnity dedicated fund is high, as it diverts funds from coverage. Receipt of funds may take longer than the operational budget. Careful analysis should be with parametric insurance, as a detailed damage undertaken to identify the optimal level of reserves assessment is required. However, as payouts that a country should hold and maintain. are directly linked to the damage experienced, the payout will better match the needs of the Contingent credit is a relatively new instrument, insured party. with current forms offering disbursement following an event whose magnitude has been agreed upon Public financial management in the Pacific is in advance. It can be fungible or conditional by dictated by the fact that many PICs are classified design. As with other sources of credit, the amount as Small Island Developing States (SIDS). Typically, available will depend on the development status countries in this classification have a narrow of the country and the debt-servicing ratio. The revenue base, are net importers, and have a advantage of contingent credit is that a drawdown consequential reliance on aid as an income stream. can be made within a 24-hour period. These characteristics can limit the options available for post-disaster finance. It is unlikely that a SIDS government could afford to reallocate the capital 27 PCRAFI Samoa budget, and a tax increase could make many items in post-disaster budget reallocation and build unaffordable and hence be detrimental to citizens’ a case for establishing national reserves. While quality of life. Given these constraints on the international assistance will always play a valuable national budget, alternatives such as contingent role, overdependence on such assistance as a credit and risk transfer options should be used to source of financing carries limitations; international reduce the drain on limited public funds. aid can be uncertain, which inhibits contingency planning, and can be slow to materialize. PIC governments face critical challenges for Increasingly, PICs such as the Cook Islands are financial resilience to natural disasters. Most PICs establishing national reserves for funding initial have restricted options for securing immediate response. liquidity for swift post-disaster emergency response without compromising their long-term fiscal The World Bank, SPC, and their partners, with balance. In addition, PICs are constrained by their grant funding from the government of Japan, have size, borrowing capacity, and limited access to implemented the Pacific Disaster Risk Financing international insurance markets. In the absence of and Insurance Program to help the PICs increase easy access to debt and well-functioning insurance their financial resilience to natural disasters and markets, a large portion of the economic losses improve their financial response capacity in the stemming from adverse natural events is borne by aftermath of natural disasters. This program is part governments and households, with support from of the Pacific Catastrophe Risk Assessment and development partners. Financing Initiative (PCRAFI). The Pacific has seen several recent cases that show the need for immediate liquidity post-disaster. In the Cook Islands, in the immediate aftermath of TC Pat in 2010, a delay in the receipt of travel funds meant that key government personnel could not immediately commence the initial damage assessment. Following TC Vania in 2010, Vanuatu had to reallocate a significant amount of the national budget. Similarly, Fiji and Samoa had to reallocate budgetary funds in the wake of TC Evan in 2012 and 2013; and the Santa Cruz earthquake in the Solomon Islands in February2013 drained the annual budget for the National Disaster Management Office and used the majority of the national contingency budget. Lacking contingency reserves and access to short- term loan funds, PICs have limited post-disaster budget flexibility and rely heavily on post-disaster Section donor assistance. Studies by SPC (2011 and 2012) that look at the fiscal impact of past disasters in selected PICs demonstrate the financial constraints 07 Samoa PCRAFI 28 Annex 2 G lossary Attachment point. The attachment point (deductible) amount is essentially the excess payable before any /// /// payout is made under a policy. That is, anything under this value will be borne by the policy holder. Catastrophe swap. A catastrophe swap, also known as a cat swap, is a financial tool used to transfer some /// /// of the risk that the covered party faces from catastrophes to the international reinsurance or capital markets. In the case of the Pacific Catastrophe Risk Insurance Pilot, tropical cyclone and/or earthquake risk is passed to the financial markets. Coverage limit. This indicates the maximum payout as defined under the policy. /// /// Emergency losses. Emergency losses in the context of the Pacific Catastrophe Risk Insurance Pilot are /// /// calculated by using a percentage of the estimated ground-up losses. Exhaustion point. The exhaustion point indicates the loss level at which the payout under a policy reaches /// /// its maximum point. Ground-up losses. Ground-up losses in this context refer to estimated total damage to buildings, /// /// infrastructure, and cash crops. Payout. A payout refers to the amount of cash that countries will receive following an eligible event. /// /// Premium. The premium is the cost that an insured party will pay for a given level of coverage: the more /// /// that is included in the coverage provided, the higher the premium will be. Premiums are determined by the amount of coverage a country chooses, the event attachment point (deductible) and exhaustion point (limit) of that coverage, and the risk profile of the country. Risk pool. A risk pool is a group of people, institutions, or countries that collaborate to manage risk /// /// financially as a single group. Section 07 Samoa PCRAFI 29 Annex 3 Insurance Market Review, February 2014 Executive Summary establish an insurance fund and to pay insurance premiums out of this fund. The /// Non-life insurance premiums, all classes, are /// premiums for the existing property insurance estimated in Samoa to be SAT 41 million program are paid out of this fund. (US$17 million). This figure includes premiums for business placed with offshore insurers, by The main catastrophe hazard in Samoa is /// locally licensed agents and brokers. The exact /// tropical cyclone. Insurers will insure only amount of premium for offshore placed insurance those properties that meet the cyclone was not available, but it is estimated to be 15 standard set out in the building code. Cyclone percent of the market premium. insurance is available as an extension to property policies only after the engineer’s The non-life market in Samoa is composed certification of compliance with the cyclone /// of four local insurers. While this would code has been received. The average premium normally be classified as a small market, /// rate for cyclone extension is 0.20 percent of the insurance industry sources judge it to be very total insured value. Based on estimates of insured- competitive. Non-life premium per capita is estimated at US$ 90.00, which is consistent to-total losses in prior major cyclone events, it is with other developing Pacific Island Countries. /// estimated that only 20 percent of businesses and 10 percent of residential premises have cyclone There is legislation in place that regulates the /// insurance. Earthquake as a peril is normally offered local insurance industry (the 2007 Insurance automatically on the full sum insured. The average Act), and the Central Bank of Samoa (CBS) premium rate for the earthquake peril is 0.10 acts as the insurance regulator. The CBS collects /// percent of total insured value, although there is information to ensure that solvency margins some variation among insurers. Tsunami is included are met. It also monitors accumulations for all as an earthquake peril. classes and requests information on reinsurance protection. The government has a property insurance /// program in place for major public buildings International insurance companies registered on an indemnity value basis. At present there is /// in Samoa are regulated by a separate body, /// no insurance of key infrastructure assets, such as the Samoa International Finance Authority bridges or roads. (SIFA). SIFA is a member of the International Association of Insurance Supervisors and Public trading bodies make their own the Group of International Insurance /// insurance arrangements, including property Section Center Supervisors. insurance for key assets. These property /// /// The Public Finance Management Act (2001), insurance programs insure earthquake, but the 08 /// Section 54, requires the government to cyclone insurance extension is not always taken. 30 PCRAFI Samoa Table A .1—  General Insurers Operating in Samoa 2012 COUNTRY OF COMPANY STATUS FINANCIAL SECURITY INCORPORATION National Pacific Insurance Samoa Local company Local solvency Limited Federal Pacific Insurance Samoa Local company Local solvency Company Limited Apia Insurance Company Samoa Local company Local solvency Limited. Progressive Insurance Co. Samoa Local company Local solvency Limited Source: Central Bank of Samoa; World Bank Insurance Market Overview Offshore market Samoa has a small non-life (general) insurance /// Insurance industry sources suggest the main market with four local insurers operating. /// offshore insurers used for placement of risks in These four insurers are detailed in table 1. Samoa are Lloyds and the London market arranged Insurance industry sources indicated that National by locally registered international brokers Aon and Pacific Insurance (NPI) and Federal Pacific are the Marsh. There is no review of these placements by most active in the property insurance class. CBS and no collection of data on the amount of premium remitted to offshore insurers. The non-life market has an estimated total /// premium income of SAT 41 million (US$17 Distribution channels million). This includes an estimate of premiums All insurers in Samoa offer insurance products on /// for risks placed with offshore insurers by licensed a direct basis, but none of these insurers offer agents and brokers operating in the market, which products online. insurance industry sources believe to be around 15 percent of the market premium. Samoa has three licensed international insurance brokers, Aon, Marsh, and Willis. None of these Of the four companies, only NPI has a multinational brokers have local offices; they visit Samoa from affiliation; it is 71 percent owned by Tower Fiji and New Zealand only as necessary to manage Insurance Limited, a New Zealand–registered client accounts. There is one local insurance broker, company. This affiliation gives NPI access to Platinum Insurance Consultants Limited. regional reinsurance programs and expertise, which in turn allows the Samoa insurance market Both ANZ Bank and Westpac Bank have insurance to insure larger risks than would otherwise agency licenses, allowing them to transact be possible. insurance business. Section 08 Samoa PCRAFI 31 Table A .2—  Pacific Non-life Insurance Premium per Capita 2012 (US$) GDP PER MARKET PREMIUM PER MARKET GDP MILLIONS POPULATION CAPITA PREMIUM CAPITA Cook Islands $305 19,300 $15,823 $6,600,000 $342 Fiji $3,908 874,700 $4,467 $97,500,000 $111 Marshall Islands $182 52,560 $3,470 $3,000,000 $57 Samoa $683 188,900 $3,619 $17,000,000 $90 Solomon Islands $1,008 549,600 $1,130 $13,000,000 $24 Tonga $471 104,900 $4,495 $4,400,000 $42 Vanuatu $781 247,300 $3,182 $16,500,000 $67 Source: World Bank 2014 Market penetration per capita by local structural engineers as complying with the cyclone code. Cyclone insurance is available The general insurance penetration for Samoa, as an extension to property policies only after the estimated on a premium per capita basis, was engineer’s certification has been received; this US$90.00 for 2012. This estimate is based on certificate is then valid for seven years. information obtained from the CBS and insurance industry sources, and includes the 15 percent of The average premium rate for cyclone extension business estimated to be placed offshore. Table 2 is 0.20 percent of the total insured value, with compares Pacific Island Countries and shows that deductibles ranging between 5.00 percent and the insurance premium per capita in Samoa is close 10.00 percent of loss, or 2 percent of the sum to the average of the Pacific countries sampled. insured. Sea surge caused by cyclones is normally an excluded peril, even when the cyclone Catastrophe Risk Exposure and extension is given. Capacity Earthquake as a peril is normally offered as an Catastrophe risk insurance represents a particular automatic peril on the full sum insured. The challenge to insurers’ exposure management, average premium rate for the earthquake peril because unlike other types of insurance, it presents is 0.10 percent of total insured value, although the possibility of large correlated losses. Insurers there is some variation among insurers. Deductible need to use a combination of reinsurance, reserves, for earthquake varies between insurers, ranging and diversification within their portfolio to ensure between 5.00 percent and 10.00 percent of that they can withstand large disaster shock losses loss, or 2 percent of the sum insured, with a without threatening their solvency. minimum of SAT 2,000. Tsunami is included as an earthquake peril. The main catastrophe hazard in Samoa is tropical cyclone. Insurers are aware of the exposure and A comparison of cyclone and earthquake rates insure only those properties that meet the cyclone across the Pacific is detailed in table 3. Samoa standard set out in the building code. In order to has below average rates for both perils, which Section better underwrite the cyclone peril, local insurers insurance industry sources suggested was due to require that buildings be inspected and certified 08 the high level of competition in the market. 32 PCRAFI Samoa There are a number of limitations with this ISR policies are used for property insurance /// /// comparison, such as variation in property on most major commercial, government, and insurance rating due to the location of premises, government public trading bodies accounts. The construction, occupation, fire protection, frequency majority of ISR policies in Samoa are issued by NPI, of expected losses, and the amount and type of using a wording based on the Papua New Guinea deductible on policies. It is not possible to use insurance industry policy. A major limitation of the average rating data as an exact basis for a specific ISR wording for governments is that infrastructure company or individual risk. It is possible, however, assets such as roads, bridges, and wharves are to carry out a general comparison of the property excluded by the policy. Insurers in Samoa do not insurance rates in respective markets. include infrastructure items in the ISR schedule. Insurers reported that infrastructure items would The main property risk accumulations are need to be insured under a Completed Contract within the capital, Apia. Insurers report these Works policy. accumulations to CBS as part of their quarterly and annual returns. Commercial Package or Business Protection /// policies are used for small to medium enterprises /// Major commercial properties are insured on a and are offered as either a Multi-Risks policy replacement basis under Industrial Special Risks (accidental damage including earthquake and (ISR) policies. One local insurer advised that it was cyclone by extension) or as a Specified Risks policy offering property insurance on an indemnity value (fire and basic perils). These generally follow the only, meaning that coverage would be based on perils insured under the ISR wording, but the the current value of the item as determined by age coverage tends to be more restrictive. and condition, rather than on the replacement cost to rebuild. This approach suggests that there Contract Works insurance is available for property /// /// are some property capacity acceptance limitations under construction and may be extended to insure in the market, which could be due to reinsurer construction of infrastructure assets. limitations. Completed civil works insurance for /// /// Another of the local insurers, NPI, appears to infrastructure assets is not a commonly available have adequate capacity for local large property product in Samoa. Insurers indicated that accumulations, due to its regional reinsurance they could, with the support of international capacity. If needed, further additional capacity is reinsurers, provide terms under such a product for available by way of offshore placements. Anecdotal infrastructure assets. market information suggests that most of these offshore placements are to the Lloyd’s and London Reinsurance market and are arranged by the international In 2011, the natural catastrophe insured losses insurance broker Aon. suffered by the global reinsurance market were the second-largest ever, at over US$110 billion Products (Swiss Re 2012). What made this year significant There are no special catastrophe insurance products for insurers (and reinsurers) in the Pacific was Section available in Samoa, but the following property and the number of events that occurred in the Asia engineering insurance products include catastrophe Pacific region. These included earthquakes in perils. New Zealand and Japan, floods in Australia and 08 Samoa PCRAFI 33 Table A .3—  Pacific Commercial Property Insurance Rate and Deductible Comparison GENERAL AVERAGE AVERAGE CYCLONE GENERAL CYCLONE MARKET EARTHQUAKE EARTHQUAKE RATE RATE DEDUCTIBLE DEDUCTIBLE Cook Islands 0.12% 2% of sum insured 0.45% 20% of sum insured Fiji 0.08% 10% of sum insured 0.30% 20% of loss 2% of sum insured or 2% of sum insured or Samoa 0.12% 0.20% 5% of loss 5% of loss 1% or 5% of sum Solomon Islands 0.17% 0.13% 5% of loss insured Tonga 0.15% 5% of sum insured 0.25% 5% of sum insured Vanuatu 0.30% 5% of loss 0.17% 20% of loss Source: World Bank 2013 Note: Average market rate percentage of value based on insurance industry sources. Thailand, and a cyclone in Australia. The Global is not detailed in the 2012 report, it would be Insurance Market Report (IAIS 2012) advised that expected to follow the previous arrangements. these Asia Pacific events accounted for 61 percent Insurers throughout the Pacific have expressed of the insured losses from natural catastrophes concern at the significant increase in recent years in 2011, compared to a 30-year average of 18 in reinsurance premiums, especially premiums percent. As a consequence, IAIS said, adjustments for catastrophe reinsurance. Insurers have limited were made in reinsurance capacity and risk ability to pass the full costs of these increases onto premiums were increased. In 2012, the natural insured clients due to the small size and economic disaster losses dropped to US$77 million (Swiss Re constraints in those markets. In Samoa, insurers 2013), but this was still the third-highest year for complained about the lack of reinsurance capacity natural catastrophe insured losses since 1970. In for catastrophe accumulations. December 2012, Evan caused estimated insured losses of SAT 28.3 million in Samoa and insured Access to catastrophe insurance losses of FJ$57 million in Fiji (Reserve Bank of Fiji 2012). Public access to catastrophe insurance is limited in Samoa, particularly for the cyclone peril. The NPI (Samoa) indicated that its operation is included price of cyclone cover (currently 0.20 percent of in the group reinsurance program arranged by insured value) and the requirement to obtain an Tower Insurance Limited for all Pacific subsidiaries, engineer’s certificate confirming compliance with including the NPI companies. In its 2011 annual cyclone standards are factors that may be putting report, Tower Insurance Limited specifically advised off consumers. It is likely that only 20 percent of that its event excess (net retention) had increased businesses and 10 percent of residential premises to $NZ 6.7 million and that it had protection for have cyclone insurance, based on the ratio of two catastrophe events within the program for the insured losses to total losses found in two prior Section 2011–2012 period (Tower Limited/Tower Capital cyclone events, Ofa and Val. Limited 2011). Although the reinsurance program 08 34 PCRAFI Samoa Box 1—  Past Catastrophe Events Cyclone /// /// In December 2012, Cyclone Evan caused significant damage in Samoa. The Earthquake and tsunami /// /// total damage to all sectors caused by Evan has been estimated at SAT 235.7 million (US$103.3 million) (GoS 2013). Total insurance claims associated On the September 30, 2009, a magnitude 8.1 earthquake occurred to with Evan have been estimated at SAT 28.3 million. CBS advised that they the south of Samoa, in the neighboring country of Tonga. The tsunami do not collect claims numbers and gross claims from local insurers for any from this earthquake caused major property damage on the south coast catastrophe events. of Samoa and in American Samoa. The total damage in Samoa from the event was estimated at SAT 211.96 million (GoS 2009). Insurance industry According to local engineers, following Cyclone Evan it was determined sources suggest that in Samoa approximately 150 claims were lodged, with that some comparatively new government buildings, constructed with aid gross insured losses estimated at SAT 10 million. These sources advised that funding, did not comply with the building code for cyclone and suffered the majority of these claims were in the tourism and transportation sectors. structural failures. Catastrophe event insurance impact /// /// Cyclone Ofa in 1990 is estimated to have caused damage and economic loss of SAT$300 million (US$120 million) (South Pacific Disaster Reduction Following Cyclones Ofa and Val in 1990 and 1991, NPI reportedly imposed Programme 1997), with local insurer losses of over SAT$15 million (National the strict condition of cyclone engineering compliance and increased Business Review 1992). cyclone rates from 0.16 percent to 0.50 percent (National Business Review 1992). NPI advised that it had considerable difficulty in obtaining Cyclone Val in 1991 was the most significant catastrophe event ever to catastrophe reinsurance in the years following these significant losses. impact Samoa. The total economic cost of the cyclone was estimated at It was estimated that prior to these two cyclones, only 20 percent of SAT$713 million (US$287) (South Pacific Disaster Reduction Programme buildings in Samoa were constructed to basic cyclone standards. After 1997), with damage to private businesses and residential properties Cyclone Val, one American insurer, Travellers Insurance Company, withdrew estimated at SAT$330 million (US$132 million) and damage to government from the neighboring American Samoa insurance market. buildings at SAT$16 million (US$6.4 million). Insurance company gross losses from this cyclone were SAT$33 million (National Business Review The tsunami in 2009 and Cyclone Evan have had a limited impact on 1992), and offshore insurer losses were estimated at a further SAT$20 local insurers, but they are likely to further restrict reinsurance capacity million. Insured losses from this event were just over 15 percent of the total and increase costs for property catastrophe reinsurance, which in turn building damage. will lead to an increase in property insurance rates in Samoa over the next few years. Insurance Law and Regulation Local general insurers are required to maintain a minimum solvency ratio of no less than SAT Samoa’s current insurance legislation is the 1 million, or 20 percent of net premium, or 15 Insurance Act (2007), with the Central Bank of Samoa (CBS) as regulator. CBS accepted that no percent of the outstanding claims provision in local on-site reviews of licensed insurers, agents, or the last 12 months. CBS requires local insurers to brokers had been completed since 2007, when it complete quarterly and annual returns. With no assumed the regulation of local insurers. Staff from on-site reviews carried out by CBS, the adequacy CBS had participated in an on-site review in Fiji in of insurer capital, solvency, and reinsurance order to gain experience in undertaking reviews, programs has not been tested. Testing would but considered they required additional expertise Section ensure that local insurers had adequate financial for the actual reviews in Samoa. CBS also advised that its focus in recent years has been on banks resources to provide for their clients in event of a 08 rather than insurance. major catastrophe in Samoa. Samoa PCRAFI 35 Box 2—  Electric Power Corporation Electric Power Corporation (EPC) is responsible for the provision of electrical Following Cyclone Evan in December 2012, EPC suffered significant supply within Samoa. Management of EPC reported that though EPC damage to property assets. An insurance claim was lodged, but the has no formal risk management plan in place, it has undertaken a self- amount offered in settlement was significantly lower than the amount assessment of risks at each location. Earthquake, tsunami, and cyclone claimed, due to deductions for excess and indemnity value adjustments. are included in the property insurance program; however, the assets are This claim was in dispute, and EPC engaged a public adjuster to review its insured for indemnity value only. The EPC assets were last valued 10 years claim and assist with the settlement negotiations. ago, but EPC has started an asset revaluation process to determine both fair market value and insurance replacement value, a process that it expects A public tender process was used each year for the insurance program to complete in 2014. Transmission and distribution lines were not insured renewal due to the amount of premium involved—over SAT $800,000. The under the program, and EPC is aware of this gap in coverage. In the future total property sum insured now at risk is over SAT $100 million. some transmission lines may be put underground to reduce their exposure to cyclone damage. Samoa is listed as a member of the International general review process for building consents, the Association of Insurance Supervisors (IAIS), but Building Alignment Ordnance (1932) and the the Samoa International Finance Authority (SIFA) Planning and Urban Management Act (2004). The is listed as the member organization. SIFA is engineers noted that discussions were underway responsible for regulating international insurers to review and if necessary update the old draft and captives under the International Insurance building code. Act (1988), not for regulating local insurance Insurers have taken proactive steps to ensure companies. SIFA is also a member of the Group of cyclone building standard compliance by requiring International Insurance Center Supervisors (GIICS). engineering certificates for insured properties, There may be a duplication of resources within rather than relying on government enforcement of Samoa with regard to supervision of insurers, the building code. since international insurers and local insurers are regulated by different agencies. It may be worthwhile for CBS to cooperate with SIFA on Insurance of Public Assets insurance supervision matters, particularly because SIFA is a member of both IAIS and GIICS and Existing risk financing policy therefore able to access the expertise of both The government of Samoa has allowed for bodies. insurance of public assets under Section 54 of Building Control and Standards the Public Finance Management Act (2001). This section establishes an insurance fund, which According to local engineers, there is a draft /// may include payment of premiums to insure building code, developed in 1992, that is against damage to public property caused by fire, used in designing structures; but no specific earthquake, or other perils. building legislation is in place to enforce Section the code. There are two acts that provide a /// While not a comprehensive risk financing policy, this section does provide flexibility to 08 the government either to self-retain some risks 36 PCRAFI Samoa Box 3—  Concession Assets agreement discount of between 2.5 percent and 5 percent for insurance periods of three years. The government of Samoa owns the fuel facility assets that are operated under a concession agreement. Under that agreement, the property The government may wish to consider asking the concession holder to insurance of those assets is arranged by the government. Every three provide quotes for insuring those government property assets at the end years the government tenders the property insurance on a three-year, but of the current insurance tender period. If the concession holder has other annually renewable, contract basis. The last tender was in July 2012, and a property insurance in place around the Pacific for similar fuel facilities, local insurer was successful in that tender. The policy is required to insure, at it may be able to obtain more favorable property insurance rates. At a a minimum, the perils of fire, cyclone, earthquake, tsunami, and flood. The minimum the government should require the assets to be insured under an estimated market value of those assets is SAT $40 million, with a further Industrial Special Risks (material damage) policy for replacement value. SAT $15.75 million in new assets to be added over the tender period. It is the standard practice within the insurance industry to offer a long-term- within the insurance fund or to insure those view. In most cases the small value of claims for risks with private insurers. This fund is used these perils could be handled as retained losses by the government to insure public assets, as within government. detailed below. The insured buildings are currently insured on Insurance of government assets an indemnity value basis only. Indemnity value is based on the cost to rebuild, less a deduction There is a comprehensive property insurance for age and wear and tear. In event of a major program in place to insure key government claim, there may be a significant shortfall between property assets against material damage, including the indemnity value and the actual cost to repair damage caused by the catastrophe perils of or reinstate the property, particularly for older earthquake and cyclone. Multiple policies are buildings. It would be more appropriate to insure arranged by the Ministry of Finance (MOF) for the properties for replacement value and take a assets of ministries and departments. There is no higher retained excess on all insured perils within agreed upon wording, and assets are variously the insurance program. insured under wordings for ISR, Business Assets Protection, and Fire, although the ISR wording Insurance of public trading body assets is the most common. It would be preferable According to the MoF, public trading bodies make for the government to agree with insurers on their own insurance arrangements, including a standard ISR wording for all government property insurance for key assets. The MoF property insurances. offered the Electric Power Corporation (EPC) as The MoF was able to provide copies of schedules an example of a public trading body that had for the property insurance program with details insurance for key public assets (see box 2), and of coverage. The properties are insured for indicated that there were concession assets (see indemnity value only and contain small sub-limits box 3) for the fuel facility insured by MoF. Section for burglary, money, self-ignition (fusion of wiring), and plate glass. These small sub-limits for minor perils are expensive from a premium point of 08 Samoa PCRAFI 37 Options for Consideration References Recommendation 1: The existing insurance /// fund provided for under the Public Finance GoS (Government of Samoa). 2009. Post-Disaster Needs Assess- ment following Earthquake and Tsunami of 29th September Management Act should be incorporated into 2009. http://www.gfdrr.org/sites/gfdrr/files/documents/ a wider disaster risk financing and insurance PDNASamoa2009.pdf. (DRFI) strategy. The DFRI strategy should identify /// ———. 2013. Post-Disaster Needs Assessment Cyclone Evan key public assets and provide agreed-upon 2012. March. http://www.gfdrr.org/sites/gfdrr/files/SAMOA retention limits for individual departments and PDNACycloneEvan2012.pdf. public trading bodies. It should review existing and IAIS (International Association of Insurance Supervisors). 2012. new risk financing and transfer options, such as Global Insurance Market Report. 2012 edition. http://www. captive insurance, regional risk pooling, and both iaisweb.org/index.cfm?event=getPage&nodeId=25308. parametric and indemnity insurance, to ensure that National Business Review. 1992. “Insurers Quit Western Samoa the best coverage at the lowest possible cost is as Cyclone Losses Mount.” May 1. being obtained. Reserve Bank of Fiji. 2012. Insurance Annual Report 2012. http:// Recommendation 2: Develop a central /// www.rbf.gov.fj/Publications-%281%29/Insurance-Annual-Re- ports.aspx. insurance register as part of the DFRI strategy /// and update the register as insurance contracts fall South Pacific Disaster Reduction Programme. 1997. The Econom- due. Currently, no central register of insurance held ic Impact of Natural Disasters in the South Pacific. http://ict. sopac.org/VirLib/DM0001.pdf. by government in respect of property insurance is in place for government and public trading Swiss Re. 2012. “Natural Catastrophes and Man-Made Disasters bodies. The register should contain details on the in 2011.” Sigma 2/2012. http://www.swissre.com/sigma/. class of business, reason for placement, and gross ———. 2013, “Natural Catastrophes and Man-Made Disasters in premium remitted. 2012.” Sigma 2/2013. http://www.swissre.com/sigma/. Recommendation 3: The Central Bank of /// Tower Limited/Tower Capital Limited. 2011. Annual Reports. Samoa should cooperate with the SIFA to http://www.tower.co.nz/investor-centre/reports/. access information from the IAIS. This would /// World Bank. 2012. “Samoa Country Data.” http://data.world- allow the CBS to access international best practice bank.org/country/samoa information on insurance company regulation and supervision, which could provide further guidance and help to build its capacity as a regulator.  Section 08 38 PCRAFI Samoa Someone who acts for the insurance company in arranging insurance contracts. There are two main Agent types of agents: tied agents, who act for one insurer only, and general agents, who act for multiple insurance companies. Someone who acts as an agent for the insured in arranging an insurance or reinsurance program Broker with a provider of capacity. The ability of an insurance company to provide insurance protection to clients, which is limited by Capacity its own financial strength and the reinsurance protection it has in place. An insurance company wholly owned by a company or entity that insures the risks of the parent Captive insurer entity and subsidiaries. Insurance that reimburses individuals or entities for loss or damage to a financial position as close Indemnity insurance as possible to the position they were in prior to the event, in the context of the financial terms of the coverage (such as deductible/excess and limit). Intermediaries The general term given to insurance agents and brokers. The amount that an insurance company retains on a reinsurance contract and in particular an Net retention excess of loss of contract. A type of insurance that is triggered by the occurrence of a specific measured hazard event, such Parametric insurance as a certain magnitude of earthquake or category of cyclone. Probable maximum loss The maximum value of a claim from a large or catastrophe event. May also be called MPL. (PML) The insurance of physical assets such as buildings, plant and equipment, stock, and machinery. Property insurance The products used for this insurance are variously named as fire and perils, commercial or business package, industrial special risks, or material damage insurance. A risk transfer method used by insurance companies to transfer part of a single large risk or an accumulation of similar risks and so increase their capacity. Reinsurance helps to smooth the Reinsurance extreme results and effects of specific perils (such as catastrophe events) and therefore to reduce the volatility of an insurance portfolio. The extent by which an insurer’s assets exceed its liabilities. Minimum statutory solvency Solvency margin requirements are normally included in insurance acts or regulations. Section 08 Samoa PCRAFI 39 Annex 4 Country Risk Profile Section 09 PACIFIC CATASTROPHE RISK ASSESSMENT AND FINANCING INITIATIVE SAMOA SEPTEMBER 2011 COUNTRY RISK PROFILE: SAMOA Samoa is expected to incur, on average, 10 million USD per year in losses due to earthquakes and tropical cyclones. In the next 50 years, Samoa has a 50% chance of experiencing a loss exceeding 130 million USD and casualties larger than 325 people, and a 10% chance of experiencing a loss exceeding 350 million USD and casualties larger than 560 people. BETTER RISK INFORMATION FOR SMARTER INVESTMENTS COUNTRY RISK PROFILE: SAMOA POPULATION, BUILDINGS, INFRASTRUCTURE AND 172˚ 45'0"W 172˚ 30'0"W 172˚ 15'0"W 172˚ 0'0"W 171˚ 45'0"W 171˚ 30'0"W 13˚ 15'0"S CROPS EXPOSED TO NATURAL PERILS Samoa 0 10 20 40 An extensive study has been conducted to assemble a Kilometers comprehensive inventory of population and properties at Buildings 13˚ 30'0"S 13˚ 30'0"S risk. Properties include residential, commercial, public and Residential industrial buildings; infrastructure assets such as major ports, Commercial airports, power plants, bridges, and roads; and major crops, Industrial such as coconut, banana, taro, sugarcane, papaya and many Apia Public 13˚ 45'0"S 13˚ 45'0"S Other others. 0 1 2 4 Kilometers TABLE 1: Apia 14˚ 0'0"S 14˚ 0'0"S Summary of Exposure in Samoa (2010) General Information: Total Population: 183,000 14˚ 15'0"S GDP Per Capita (USD): 3,090 172˚ 45'0"W 172˚ 30'0"W 172˚ 15'0"W 172˚ 0'0"W 171˚ 45'0"W 171˚ 30'0"W Total GDP (million USD): 565.2 Figure 1: Building locations. Asset Counts: 172°45'0"W 172°30'0"W 172°15'0"W 172°0'0"W 171°45'0"W 171°30'0"W Residential Buildings: 41,960 13°15'0"S Public Buildings: 1,720 Samoa 0 10 20 40 Commercial, Industrial, and Other Buildings: 5,151 Kilometers All Buildings: 48,831 13°30'0"S 13°30'0"S Hectares of Major Crops: 35,553 Cost of Replacing Assets (million USD): Buildings: 2,148 Apia 13°45'0"S 13°45'0"S Infrastructure: 465 Crops: 25 Total: 2,638 14°0'0"S 14°0'0"S Building Replacement Cost Density Government Revenue and Expenditure: (million USD / km^2) 0.0 - 0.1 0.5 - 0.75 5 - 10 Total Government Revenue 0.1 - 0.25 0.75 - 1 10 - 20 (Million USD): 170.8 0.25 - 0.5 1-5 14°15'0"S (% GDP): 30.2% 172°45'0"W 172°30'0"W 172°15'0"W 172°0'0"W 171°45'0"W 171°30'0"W Total Government Expenditure Figure 2: Building replacement cost density by district. (Million USD): 224.4 172˚ 45'0"W 172˚ 30'0"W 172˚ 15'0"W 172˚ 0'0"W 171˚ 45'0"W 171˚ 30'0"W 13˚ 15'0"S Samoa Land Cover / Land Use (% GDP): 39.7% Settlement Grass land Other Plantation Banana Nut Tree Sugarcane 1 D  ata assembled from various references including WB, ADB, IMF and The Coconut Crops Palm Oil Taro Secretariat of the Pacific Community (SPC). 13˚ 30'0"S 13˚ 30'0"S Coconut Forest Open land Unknown Crops 2  The projected 2010 population was trended from the 2006 census using Forest Other Water estimated growth rates provided by SPC. Table 1 summarizes population and the inventory of buildings, Apia 13˚ 45'0"S 13˚ 45'0"S infrastructure assets, and major crops (or “exposure”) at risk as well as key economic values for Samoa. It is estimated that 0 1 2 4 the replacement value of all the assets in Samoa is 2.6 billion Kilometers USD of which about 81% represents buildings and 18% Apia 14˚ 0'0"S 14˚ 0'0"S represents infrastructure. 0 10 20 40 Figures 1 and 2 illustrate the building exposure location and Kilometers 14˚ 15'0"S replacement cost distribution, respectively. The footprints of 172˚ 45'0"W 172˚ 30'0"W 172˚ 15'0"W 172˚ 0'0"W 171˚ 45'0"W 171˚ 30'0"W all the approximately 49,000 buildings shown in Figure 1 were Figure 3: Land cover/land use map. digitized from high-resolution satellite imagery. More than September 2011 2 COUNTRY RISK PROFILE: SAMOA 6,500 of such buildings, most of them in Apia, were also field earthquakes and, in some cases, major tsunamis that can travel surveyed and photographed by a team of inspectors deployed great distances. The 2009 magnitude 8.1 earthquake, which for this purpose. Figure 3 displays the land cover/land use map generated a devastating tsunami destroying many villages on that includes the location of major crops. The data utilized the island of Upolu, is a recent and tragic example. Figure 5 for these exhibits was assembled, organized and, when shows that Samoa has a 40% chance in the next 50 years of unavailable, produced in this study. experiencing, at least once, moderate to very strong levels of ground shaking. These levels of shaking are expected to cause HAZARDS TROPICAL CYCLONE AND EARTHQUAKE ­ damage, ranging from light to moderate, to well-engineered IN SAMOA buildings and even more severe damage to structures built The Pacific islands region is prone to natural hazards. Samoa with less stringent criteria. is located south of the equator in an area known for the frequent occurrence of tropical cyclones with damaging winds, rains and storm surge between the months of October and May. In the South Pacific region from the equator to New Zealand in latitude and from Indonesia to east of Hawaii in longitude almost 1,000 tropical cyclones with hurricane- force winds spawned in the last 60 years, with an average of about 16 tropical storms per year. Samoa was affected by devastating cyclones multiple times in the last few decades. For example, tropical cyclones Ofa and Val, in 1990 and 1991, caused 21 fatalities and widespread destruction with total economic losses between 300 and 500 million USD that crippled the local economy. Figure 4 shows the levels of wind speed due to tropical cyclones that have about a 40% chance to be exceeded at least once in the next 50 years (100-year mean return period). These wind speeds, if they were to occur, are capable of generating severe damage to buildings, Perceived Shaking Not Felt Weak Light Moderate Strong Very Strong Severe Violent Extreme infrastructure and crops with consequent large economic Moderate/ Very Potential Damage none none none Very light light Moderate Heavy Heavy Heavy losses. Peak ACC. (%g) <0.17 0.17-1.4 1.4-4.0 4.0-9 9-17 17-32 32-61 61-114 >114 Peak Vel. (cm/s) <0.12 0.12-1.1 1.1-3.4 3.4-8 8-16 16-31 31-59 59-115 >115 Samoa is situated in a relatively quiet seismic area but is Instrumental Intensity I II-III IV V VI VII VIII IX X+ surrounded by the Pacific “ring of fire,” which aligns with Scale based upon Wald. et al: 1999 the boundaries of the tectonic plates. These boundaries are Figure 5: Peak horizontal acceleration of the ground (Note: 1g is equal to the extremely active seismic zones capable of generating large acceleration of gravity) that has about a 40% chance to be exceeded at least once in the next 50 years. RISK ANALYSIS RESULTS To estimate the risk profile for Samoa posed by tropical cyclones and earthquakes, a simulation model of potential storms and earthquakes that may affect the country in the future was constructed. This model, based on historical data, simulates more than 400,000 tropical cyclones and about 7.6 million earthquakes, grouped in 10,000 potential realizations of the next year’s activity in the entire Pacific Basin. The catalog of simulated earthquakes also includes large magnitude events in South and North America, Japan and the Philippines, which could generate tsunamis that may affect Samoa’s shores. The country’s earthquake and tropical cyclone risk profiles are derived from an estimation of the direct losses to buildings infrastructure assets and major crops caused by all the 0 25 50 75 100 125 150 175 200 simulated potential future events. The direct losses comprise the cost of repairing or replacing the damaged assets but do Maximum Wind Speed 3 Figure 4: Maximum 1-minute sustained wind speed (in miles per hour) with a 40% chance to be exceeded at least once in the next 50 years. September 2011 COUNTRY RISK PROFILE: SAMOA not include other losses such as contents losses, business 172°45'0"W 172°30'0"W 172°15'0"W 172°0'0"W 171°45'0"W 171°30'0"W 13°15'0"S interruption losses and losses to primary industries other Samoa than agriculture. The direct losses for tropical cyclones are 0 10 20 40 Kilometers caused by wind and flooding due to rain and storm surge, 13°30'0"S 13°30'0"S while losses for earthquakes are caused by ground shaking and tsunami inundation. After assessing the cost of repairing or rebuilding the damaged assets due to the impact of all the Apia 13°45'0"S 13°45'0"S simulated potential future events, it is possible to estimate in a probabilistic sense the severity of losses for future catastrophes. Total Average Annual Loss (million USD) 14°0'0"S 14°0'0"S The simulations of possible next-year tropical cyclone and 0 - 0.05 0.20 - 0.25 earthquake activity show that some years will see no storms 0.05 - 0.10 0.25 - 0.50 or earthquakes affecting Samoa, while other years may see 0.10 - 0.15 0.50 - 1.0 14°15'0"S 0.15 - 0.20 3.2 one or more events affecting the islands, similar to what has 172°45'0"W 172°30'0"W 172°15'0"W 172°0'0"W 171°45'0"W 171°30'0"W happened historically. The annual losses averaged over the Figure 7: Contribution from the different districts to the average annual loss for many realizations of next-year activity are shown in Figure tropical cyclone and earthquake (ground shaking and tsunami). 6 separately for tropical cyclone and for earthquake and 172°45'0"W 172°30'0"W 172°15'0"W 172°0'0"W 171°45'0"W 171°30'0"W 13°15'0"S tsunami, while the contributions to the average annual loss from the different districts are displayed in absolute terms Samoa in Figure 7 and normalized by the total asset values in each 0 10 20 40 district in Figure 8. Figure 8 shows how the relative risk varies Kilometers 13°30'0"S 13°30'0"S by district across the country. The same risk assessment carried out for Samoa was also Apia 13°45'0"S 13°45'0"S performed for the 14 other Pacific Island Countries. The values of the average annual loss of Samoa and of the other 14 countries are compared in Figure 9. AAL / Asset Value 14°0'0"S 14°0'0"S Tropical Cyclone Earthquake Average Annual Loss = 6.9 million USD Average Annual Loss = 2.9 million USD 0% - 0.2% 0.5% - 0.7% 2.5% 35.4% 0.2% - 0.3% 0.7% - 1% 23.2% 0.3% - 0.4% 1% - 1.3% Buildings Buildings 14°15'0"S Cash Crops Cash Crops 0.4% - 0.5% 1.3% - 1.6% Infrastructure Infrastructure 172°45'0"W 172°30'0"W 172°15'0"W 172°0'0"W 171°45'0"W 171°30'0"W 74.4% 0.0% 64.6% Figure 8: Contribution from the different districts to the tropical cyclone and earthquake (ground shaking and tsunami) average annual loss divided by the replacement cost of the assets in each district. Figure 6: Average annual loss due to tropical cyclones and earthquakes (ground shaking and tsunami) and its contribution from the three types of assets. Tropical Cyclone Earthquake Ground Motion Tsunami 100 Average Annual Loss (million USD) 10 In addition to estimating average risk per calendar year, 80 8 another way of assessing risk is to examine large and 6 4 rather infrequent but possible future tropical cyclone and 60 2 0 earthquake losses. Table 2 summarizes the risk profile for Samoa in terms of both direct losses and emergency losses. 40 The former are the expenditures needed to repair or replace the damaged assets while the latter are the expenditures 20 that the Samoan government may need to incur in the 0 aftermath of a natural catastrophe to provide necessary relief and conduct activities such as debris removal, setting up shelters for homeless or supplying medicine and food. The emergency losses are estimated as a percentage of the direct losses. 4 Figure 9: Average annual loss for all the 15 Pacific Island Countries considered in this study. September 2011 COUNTRY RISK PROFILE: SAMOA Table 2 includes the losses that are expected to be exceeded, same probabilistic procedure described above for losses on average, once every 50, 100, and 250 years. For example, has been adopted to estimate the likelihood that different a tropical cyclone loss exceeding 134 million USD, which is levels of casualties (i.e., fatalities and injuries) may result equivalent to about 24% of Samoa’s GDP, is to be expected from the future occurrence of these events. As shown in on average once every 100 years. In Samoa, tropical cyclone Table 2, our model estimates, for example, that there is a losses are expected to be substantially more frequent and 40% chance in the next fifty years (100 year mean return severe than losses due to earthquake ground shaking period) that one or more events in a calendar year will cause and tsunami. The latter, however, remain potentially casualties exceeding 370 people in Samoa. Events causing catastrophic events. approximately 1,000 casualties are also possible but have much lower likelihood of occurring. A more complete picture of the risk can be found in Figure 10, which shows the mean return period of direct losses in TABLE 2: Estimated Losses and Casualties Caused by Natural Perils million USD generated by earthquake, tsunami and tropical Mean Return Period (years) AAL 50 100 250 cyclones combined. The 50, 100, and 250 year mean return Risk Profile: Tropical Cyclone period losses in Table 2 can also be determined from the curves in this figure. The direct losses are expressed both in Direct Losses absolute terms and as a percent of the national GDP. (Million USD) 6.9 78.6 134.1 257.8 (% GDP) 1.2% 13.9% 23.7% 45.6% In addition to causing damage and losses to the built Emergency Losses environment and crops, future earthquakes and tropical (Million USD) 1.6 18.1 30.9 59.2 cyclones will also have an impact on population. The (% of total government 0.7% 8.1% 13.7% 26.4% expenditures) 600 Casualties 11 131 212 383 TC+EQ Risk Profile: Earthquake and Tsunami Losses (million USD) 500 TC 400 EQ Direct Losses 300 (Million USD) 2.9 39.1 93.1 116.3 (% GDP) 0.5% 6.9% 16.5% 20.6% 200 Direct   Emergency Losses 100 (Million USD) 0.0 8.9 21.4 26.6 0 0 100 200 300 400 500 600 700 800 900 1,000 (% of total government 0.0% 3.9% 9.5% 11.9% Mean  Return  Period  (years) expenditures) Casualties 8 145 302 410 100% TC+EQ Risk Profile: Tropical Cyclone, Earthquake, and Tsunami 80% TC Direct Losses  GDP) EQ (Million USD) 9.9 109.8 152.9 266.1 Losses (% 60% (% GDP) 1.7% 19.4% 27.0% 47.1% 40% Emergency Losses Direct   20% (Million USD) 2.3 25.2 35.1 61.2 0% (% of total government 1.0% 11.2% 15.7% 27.3% 0 100 200 300 400 500 600 700 800 900 1,000 expenditures) Mean  Return  Period     (years) Casualties 19 254 374 469 Figure 10: Direct losses (in absolute terms and normalized by GDP) caused by either Casualties include fatalities and injuries. 1 tropical storms or earthquakes that are expected to be exceeded, on average, once in the time period indicated. 5 September 2011 PCRAFI 2015 Country Note SAMOA This note on Samoa forms part of a series of country Disaster Risk Finance and Insurance (DRFI) notes that were developed to build understanding of the existing DRFI tools in use in each country and to identify gaps future engagements in DRFI that could further improve financial resilience. These notes were developed as part of the technical assistance provided to countries under the Pacific DRFI program jointly implemented by the World Bank and the Secretariat of the Pacific Community financed by the Government of Japan. The technical assistance builds on the underlying principles of the three-tiered di- saster risk financing strategy and focuses on three core aspects: (i) the development of a public financial management strategy for natural disasters, recognizing the need for ex-ante and ex-post financial tools; (ii) the post-disaster budget execution process, to ensure that funds can be accessed and disbursed easily post-disaster; and (iii) the insurance of key public assets, to resource the much larger funding require- ments of recovery and reconstruction needs. The Pacific DRFI Program is one of the many applications of PCRAFI. It is designed to increase the financial resilience of PICs by improving their capacity to meet post-disaster financing needs without compromising their fiscal balance. Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) is a joint initiative of SOPAC/SPC, World Bank, and the Asian Development Bank with the financial support of the Government of Japan, the Global Facility for Disaster Reduction and Recovery (GFDRR) and the ACP-EU Natural Disaster Risk Reduction Programme, and technical support from AIR Worldwide, New Zealand GNS Science, Geoscience Australia, Pacific Disaster Center (PDC), OpenGeo and GFDRR Lab