“We acknowledge that that this article first appeared on Bermuda:RE+ILS.”
China’s Belt and Road Initiative, the economic project which aims to recreate the ancient Silk Road that linked Europe to Asia, needs protecting. ILS could provide the perfect solution, as Kirill K. Savrassov, chief executive of Phoenix CRetro Reinsurance Company, tells Bermuda:Re+ILS.
In September a 5.8 magnitude earthquake shook Istanbul, triggering the evacuation of schools and public buildings and damaging buildings. The same week, a 5.8 magnitude event killed 38 people and caused massive damage to infrastructure and roads in north-eastern Pakistan.
For Turkey it represented a stark reminder of how bad these events can be. In 1999, a 7.4 magnitude earthquake in the western part of the country killed more than 17,000 people.
For Kirill Savrassov, chief executive of Bermuda-based Phoenix CRetro, such events serve as a reminder of the potentially important role that insurance-linked securities (ILS) based on parametric triggers could play in the region to help cover some of the growing risks in Eastern Europe and Western areas of Asia.
Savrassov stresses that for a range of historic reasons insurance penetration remains very low in the various countries of the former Soviet Union, in Turkey and in parts of former Yugoslavia. Those areas are also very vulnerable to earthquakes, such as the ones that have devastated Armenia and Tashkent in the past 50 years.
Protecting the Silk Road
Savrassov says the Turkey earthquake illustrates Turkey’s strategic importance as part of Eurasia, an area with a long history of various natural disasters, although earthquakes have probably been the most significant.
Devastating events in the region include Almaty (1911), Ashgabat (1948), Tashkent (1966), Spitak (1988)—all earthquakes that almost totally ruined the respective cities. On top of these, severe flooding in the Balkans in 2014 and 2016 caused tremendous damage and disruption to several of the region’s economies.
“Turkey was always positioned as the ‘bridge’ between Europe and Asia; now, with the Belt and Road Initiative (BRI), this concept can go further to the entire region between mainland China and the EU,” Savrassov says.
“With the BRI and key transport corridors passing through countries of the Commonwealth of Independent States and the Western Balkans the threat of devastating natural disasters and earthquake in particular takes on new dimensions.
“This is especially true if investment is made in infrastructure to further open up key transport corridors, but these are located in some of the most earthquake-exposed territories of Eurasia—if not the world.”
The investment being poured into the region by the Chinese government via the BRI is designed to expand its economic footprint and to recreate the ancient Silk Road that linked Europe to Asia.
This requires the creation of infrastructure such as roads, railways, bridges and warehouses, as well as the living quarters for local workers. All of this would be very vulnerable to a major earthquake, not to mention the losses that could be caused by business interruption costs.
“Private markets have the solution to this in the form of parametric cat bonds,” says Savrassov.
“This is a classic win-win partnership and it’s very much the future of the development of the ILS class. It’s in the interest not just of investors or ILS fund managers, but in the interest of international agencies and financial institutions such as the UN Development Programme and the Asian Development Bank, as well as the
“To give an example of the scale of the vulnerability, the BRI has not yet been completed but 10,000-plus trains a year already pass through railways from China to Europe.
“The amount of disruption from an earthquake in Kazakhstan or Uzbekistan could be economically catastrophic,” he says.
Savrassov iterates that with investments of billions of dollars being poured into critical infrastructure, the BRI is seen by transit countries as an important opportunity to expand their international trade and gain a boost to their economies.
“However, the issue of protection in case of a large disaster remains open and burdened by some regional specifics. In underdeveloped markets where penetration is less than 2 percent and there is state ownership of—and responsibility for—critical infrastructure, insurance does not play any meaningful role in case of a really devastating event.
“This raises a question about post-disaster finance arrangements,” he says. “It relates to potential contingent business interruption losses, whereby an earthquake in Kazakhstan or Uzbekistan may stop the whole corridor operating for a significant amount of time, with consequences to the whole BRI project.
“If there is to be a solution that benefits everyone, it is likely that it will have to be organised by the governments, whether on a sovereign or sub-sovereign level in the form of disaster risk transfer. Ideally it will combine all the best practices developed in other parts of the world.”
Savrassov says that over the last two decades, financial markets, governments, and the development community have introduced important innovations in disaster risk finance, giving rise to a collection of funding sources after disasters such as national or regional pooling schemes, contingent credit lines, parametric disaster risk insurance, catastrophe bonds and other ILS techniques.
With the fragmentation of countries and geographies based on their strategic foreign policy making the creation of regional schemes such as the Caribbean Catastrophe Risk Insurance Facility or the African Risk Capacity risk pools difficult, and low sovereign credit ratings making it tough to raise funds, the transfer of peak risks to capital markets in the form of parametric sovereign catastrophe bonds seems to be the most viable option in the region.
Savrassov explains that this is especially true following successful examples in Latin America, Caribbean states and Africa where such bonds appeared to prove the concept. Using simple, transparent and well-defined trigger mechanisms, investors have become comfortable and there have been several payouts in recent years.
“A government considering such type of disaster risk transfer will obtain certainty around budgetary planning and fast capital deployment after the event if it is triggered by pre-defined parameters,” he says.
Savrassov adds that if the Chinese were to invest in such bonds, this would ensure a stable form of protection from a country with a vested interest in protecting the region—avoiding complicated and not always available insurance solutions.
“One important message to deliver is that issuance of sovereign cat bonds is not rocket science,” he says.
“Any country that has ever issued, say, Eurobonds could quickly get to the same point with catastrophe bonds in terms of legal preparedness.”
Two other important factors that could aid the emergence of the first sovereign cat bonds are the diversification ILS bonds offer investors and Singapore’s recent endeavours in ILS whereby it is offering issuers incentives in the form of a grant scheme to use it as a domicile for ILS deals.
ILS investors see the asset class as uncorrelated from their other investments, but they are increasingly over-concentrated towards North American exposures.
“There is no doubt that diversification into a new territory, especially one yet unexplored, would attract a big interest,” Savrassov says.
“This is obviously subject to transparent and compliant structuring, based on the lessons learned in other parts of the world over the last decade.”
Singapore is moving towards becoming the ILS centre in Asia. It has already completed issuances for IAG, Security First and Safepoint and Savrassov notes that some of those bonds cover perils outside Asia.
Cat bonds can be a good instrument for development banks in their wish to support developing countries and the increase of disaster resilience in the region, he notes.
“In addition, the use of cat bonds for disaster risk transfer solves a fundamental problem of addressing the protection gap.
“Based on the aforesaid let us assume that the combination of various factors together with the question of general macroeconomic stability of the entire BRI brings a unique opportunity for the introduction of a sovereign or sub-sovereign parametric catastrophe bonds solutions for the whole region between Europe and China,” he concludes.
Phoenix CRetro, Insurance-linked securities, ILS, Kirill Savrassov, Europe, Asia,
Using payments to streamline everyday transport
By Venceslas Cartier, Global Head of Transportation & Smart Mobility at Ingenico Enterprise Retail
Once upon a time the only way to get from A to B on public transport was with cash – and likely a pre-paid ticket bought from a physical office. Nowadays, thanks to technological developments, options range from contactless and mobile payments, to in-app tickets and more. As payment methods advance, consumers and merchants are naturally moving towards Mobility as a Service (MaaS) systems, integrating various forms of transport services into a single mobility service, accessible on demand.
This move towards MaaS does not only streamline the consumer experience, it has other positive impacts too. Incentivising public transport use reduces environmental pollution, improves mental wellbeing by reducing travel-related stress, and aids productivity by freeing up time otherwise spent driving. With this in mind, let’s take a look at the current trends affecting the transport sector, as well as how payments can optimise transportation for both operators and consumers alike.
Optimising transport with payments
The payment process is integral to any service. A payment service provider (PSP) can provide a range of key benefits to operators by proving a gateway to the transportation open payment ecosystem, and ensuring they meet objectives in 3 key areas.
- Environmentally, by reducing the use of personal cars and alleviating pollution and congestion.
- Societally, making urban mobility more inclusive in terms of improving access to all areas and for all socioeconomic classes.
- Economically, by optimising investment in eco-structure and fostering financial transactions, therefore improving the wealth of the city.
Payments professionals’ expertise and technological solutions can make payments easy again for transport operators. They can provide a range of options so that the customer can choose which one is right for them, leveraging the capabilities of the mobility services’ infrastructure (contactless, mobile wallets, P2P, closed-loop, QR code, and blockchain).
Furthermore, they can help promote inclusion and sustainable urban development. For example, methods such as prepaid virtual cards, or mobility accounts linked to a prepaid account can reduce the risks of excluding the unbanked. The environmental impact per kilometre can also be reduced, along with the use of vehicles with lower emissions per person per kilometre.
Finally, PSPs can put merchants’ minds at ease, providing payment liability, allowing aggregation of all due amounts from all mobility service providers, and collecting payments in one single transaction from users while dispatching revenue between mobility service providers.
COVID-19’s disruption to the travel industry cannot be overlooked. In fact, research suggests that public transit ridership is down 70% across the globe since the onset of the virus, longer distance travel has seen reductions of up to 90%, and payment by cash has seen a 60% drop.
Being realistic, these behavioural shifts are unlikely to revert anytime soon, so it’s important for merchants to keep this in mind when thinking about payment methods. More than 70% of consumers and travellers say they are likely to avoid the use of cash over the next six months. As a result, more than 40 countries have already raised their contactless payment threshold, further helping consumers to avoid contact with frequently touched pin pads.
However, the pandemic has only accelerated the way things were heading already and highlighted the benefits. Within the context of the pandemic, transportation needs to reinvent itself and adapt its processes to suit the shift in commuter habits that we’ve already seen and will continue to see in the future.
Other trends to keep an eye on
Contactless has been steadily growing on the transport scene, as have mobile payments and in-app purchases. In fact, the recent move to mobile and online ticketing is the most promising method so far, having seen significant growth in the last few years and having been accelerated by COVID-19 as discussed above. Once consumers move to these easy, convenient, and seamless methods, it’s rare that they revert – so it’s a good idea for operators to think how they can cater to these preferences.
Speed and convenience are a must for busy travellers – but not at the expense of data security. Finding the right payments partner is therefore crucial so operators can safeguard their customers’ personal data, while also keeping on top of other security regulations/features such as P2P encryption, PCI certification, and tokenisation.
Next steps for operators
Public transport is essential for many peoples’ everyday lives – COVID-19 or no COVID-19. As such, mobility service providers can make a great difference to their service and operations by implementing the right solutions.
Grey skies ahead – Malta prepares for a gloomy 2021 if they can’t tackle financial crime
By Dhanum Nursigadoo, ComplyAdvantage
With the summer drawing to a close, many countries who rely significantly on warm weather tourism will be assessing the impact of Covid-19. Being a small island in the middle of the Mediterranean you would expect Malta to be taking a significant economical hit – just like we are seeing in other popular European holiday destinations – but this doesn’t take into account the strength of the Maltese economy.
Emerging from the eurozone crisis with one of the most dynamic economies strategically positioned between three continents, Malta has had one of the lowest unemployment rates in the EU and has recently seen its GDP growth expand year-on-year. But perhaps the most important aspect of the Maltese economy has been its attraction for foreign businesses with only a 5% tax on profits. It is no secret that Malta is a tax haven, probably one of the most effective tax havens in the world.
But you can’t pick and choose who takes shelter, and it’s no secret that money launderers have been taking advantage of the regulatory landscape in this archipelago.
The conditions of a tax haven suit criminal enterprises, who can take advantage of the opaque environment and blend their illegal activities with the same operations enjoyed by high net worth individuals and corporations who are looking to reduce their tax bill. And last year Malta’s keenness for secrecy and avoidance resulted in a damning report by Moneyval – the Council of Europe’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) body – which found that while the nation had made some efforts to curb money laundering there was still much to be desired in order to bring the tax haven up to standard. Overall, they were of the opinion that Malta viewed combating money laundering as a non-priority and this resulted in branding Malta with low to partial ratings for 30 out of the 40 Financial Action Task Force (FATF) recommendations.
The findings of the report were stated to have the potential to “create within the wider public the perception that there may exist a culture of inactivity or impunity”. This follows on from a series of international high-profile stories regarding Malta and financial crime. Most shocking was the murder of journalist Daphne Caruana Galizia – who investigated corruption and money laundering in her native country – and was killed by a car-bomb three years ago leading to international outrage and condemnation.
Now Malta is in a race against time to turn their reputation around or they will suffer genuine consequences. The FATF have threatened to place Malta on a “greylist” of high-risk jurisdictions unless they have shown a genuine commitment to combatting financial crime and implemented the recommendations of the Moneyval report. If they fail, this would make Malta the first EU country to make the list and join others such as Panama, Syria and Zimbabwe.
The pandemic has actually given Malta more time to meet these obligations, and it has been widely reported that an initial summer deadline has now been moved to October due to the widespread disruption.
As we head into the autumn, there are signs that Malta has begun to take action. The Malta Financial Services Authority (MFSA) has created and established an empowered AML now headed up by Anthony Eddington, formerly of the UK’s Financial Conduct Authority and who has previous experience of tackling anti-financial crime at Deutsche Bank. This team has already begun working closely with international experts, specifically partners in the US through the US embassy in Malta and the United States Commodities Futures Trading Commission (CFTC). In May this collaboration led to 25 new cases focused on money laundering in particular, and with plans to increase standard inspections and on-site investigations into businesses in Malta, it appears there is a change to the country’s priorities.
Importantly, the report highlighted a problem for countries that choose to become tax havens. In some cases it was not that the Maltese authorities deliberately turned a blind-eye, but simply that they did not have the necessary knowledge to effectively tackle financial crime in the first place. Law enforcement appeared unable to even recognise when crime was occurring.
But this blurring of financial compliance will not help businesses if Malta does indeed become “greylisted” this year. While not as devastating as being blacklisted (the two occupants of this list are Iran and North Korea) there are significant detrimental effects to being put on the FATF greylist. Although this signals that the country is committed to developing AML/CFT plans (unlike the blacklist) it still sends out a warning signal to the world that this is a high-risk area, with the country in question subject to increased monitoring and potential sanctions from the IMF and the World Bank. Make no mistake, being put on the greylist will be catastrophic for Malta’s economy.
It remains to be seen how the work to avoid such a calamity will affect Malta’s tax haven status. Perhaps with an increased fight against financial crime there will be less ability to defend one of Europe’s most competitive tax regimes. But if Malta does not show they are genuinely committed to tackling this problem, then the pandemic disruption to the island’s tourism may be minor in comparison to the grey clouds that now approach their shores.
How will the UK prepare a supply chain for the distribution of the Covid-19 vaccines?
By Don Marshall, Marketing role at Exporta.
The challenge of mobilising a supply chain for the introduction of a global and nationwide vaccine will be enormously complex. The process will be costly, and it’s likely the figures will stretch to the hundreds of millions for both the production of the vaccine itself and its distribution across the UK. We must prepare and plan a supply chain strategy to ensure it reaches those most in need in a timely and safe manner.
The task of immunising a whole population is something that has never been planned or likely imagined by anyone within a standard supply chain. A supply chain that goes directly from the manufacturer to the end consumer, or user/ patient in this case, is complex and goes beyond the scope of any single logistics company. It would have to be conceived and delivered via a large joint effort and collaboration between multiple organisations. Effectively distributing the vaccine will depend on the source of manufacture, its storage requirements, and protection of the vaccines from manufacture through to patient administration.
The majority of vaccines require storage within a specific temperature range and need to be handled safely and in hygienic conditions. Depending on where the vaccines are manufactured, the transport legs will vary; if they are coming from overseas, air freight will increase cost and complexity. In addition to supplying the vaccine, syringes, needles and containers also need to be taken into account when preparing the supply chain.
Securing the specific types of boxes or containers i.e. the lidded containers normally used for transporting pharmaceutical products will mean acquiring them from all available stockists and manufacturers. Delivery vehicles would then need to be considered, with temperature-control factored in. The medical supply chain can inform their approach to distribution by assessing data from previous supply chains, and how large quantities of vaccines have been sent out in the past. Collating successful vaccine delivery examples from other parts of the world would be advantageous here, the more we can do to prepare for a logistical challenge of this magnitude, the better.
The distribution of this COVID vaccine will be unique in its scale and for that reason, additional supply chains will need to be mobilised. Apart from medical supply chains, those best suited for this type of transportation are the fresh/frozen food industries and supermarkets. I would mobilise these businesses to assist with the vaccine’s distribution wherever possible and use their car parks and facilities for the temporary medical centres needed to administer the vaccine to the public.
Using the food industry and supermarket networks would leave the current pharmaceutical supply chains intact for health services, pharmacies and the NHS. It would protect those vital services and continue to serve communities across the UK. Inevitably, it would place a short term strain on food supply chains, but these are supply chains that are well-equipped and versed in coping with excess demand i.e. the spike endured from the brief spell of public panic buying at the start of the crisis. With adequate resourcing and planning, I believe the UK supply chain can and will handle this challenge.
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