94984
SAMOA
Country Note
PCR AFI 2015
SAMOA
February 2015
Disaster Risk Financing and Insurance
© 2015 International Bank for Reconstruction and Development /
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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