Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00006242 IMPLEMENTATION COMPLETION AND RESULTS REPORT ON A LOAN/CREDIT/GRANT IN THE AMOUNT OF SDR 19.033 MILLION (US$ 25.33 MILLION EQUIVALENT) TO THE Pacific Catastrophe Risk Insurance Foundation FOR THE PCRAFI : Furthering Disaster Risk Finance in the Pacific June 29, 2023 Finance, Competitiveness And Innovation Global Practice East Asia And Pacific Region CURRENCY EQUIVALENTS (Exchange Rate Effective {December 23, 2022}) Currency Unit = US$ US$ 1.33 = SDR 1 FISCAL YEAR July 1 - June 30 Regional Vice President: Manuela Ferro Country Director: Stephen Ndegwa Regional Director: Hassan Zaman Practice Manager: Cecile Thioro Niang Task Team Leader(s): Dara Malia Lengkong, Luis Alton ICR Main Contributor: Radu Tatucu, Hang Thu Vu ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank CAT DDO Catastrophe Deferred Drawdown Option CCRIF Caribbean Catastrophe Risk Insurance Facility ISM Implementation Support Mission PacRIS Pacific Risk Information System PAD Project Appraisal Document PICs Pacific Island Countries PCRIC Pacific Catastrophe Risk Insurance Company PCRAFI Pacific Catastrophe Risk Assessment and Financing Initiative PCRIF Pacific Catastrophe Risk Insurance Foundation PIFS Pacific Islands Forum Secretariat PREP Pacific Resilience Program SECCRIF South East Europe and Caucasus Regional Catastrophe Risk Insurance Facility SPC The Pacific Community / Secretariat of the Pacific Community SPV Special Purpose Vehicle TTL Task Team Leader UNCDF United Nations Climate Development Fund WTW Willis Tower Watson TABLE OF CONTENTS DATA SHEET .......................................................................................................................... 1 I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 5 A. CONTEXT AT APPRAISAL .........................................................................................................5 B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) ..................................... 10 II. OUTCOME .................................................................................................................... 13 A. RELEVANCE OF PDOs ............................................................................................................ 13 B. ACHIEVEMENT OF PDOs (EFFICACY) ...................................................................................... 15 C. EFFICIENCY ........................................................................................................................... 17 D. JUSTIFICATION OF OVERALL OUTCOME RATING .................................................................... 18 E. OTHER OUTCOMES AND IMPACTS (IF ANY) ............................................................................ 20 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 21 A. KEY FACTORS DURING PREPARATION ................................................................................... 21 B. KEY FACTORS DURING IMPLEMENTATION ............................................................................. 22 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 24 A. QUALITY OF MONITORING AND EVALUATION (M&E) ............................................................ 24 B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ..................................................... 25 C. BANK PERFORMANCE ........................................................................................................... 26 D. RISK TO DEVELOPMENT OUTCOME ....................................................................................... 27 V. LESSONS AND RECOMMENDATIONS ............................................................................. 28 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ........................................................... 31 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ......................... 36 ANNEX 3. PROJECT COST BY COMPONENT ........................................................................... 39 ANNEX 4. EFFICIENCY ANALYSIS ........................................................................................... 40 ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ... 41 ANNEX 6. SUPPORTING DOCUMENTS (IF ANY) ..................................................................... 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P161533 PCRAFI : Furthering Disaster Risk Finance in the Pacific Country Financing Instrument Pacific Islands Investment Project Financing Original EA Category Revised EA Category Not Required (C) Not Required (C) Organizations Borrower Implementing Agency Pacific Catastrophe Risk Insurance Company, Pacific Pacific Catastrophe Risk Insurance Foundation Catastrophe Risk Insurance Foundation Project Development Objective (PDO) Original PDO The project development objective is to improve access to post-disaster rapid response finance to Pacific Island Countries. Page 1 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 25,330,000 25,330,000 24,621,577 TF-A4171 Total 25,330,000 25,330,000 24,621,577 Non-World Bank Financing 0 0 0 Total 0 0 0 Total Project Cost 25,330,000 25,330,000 24,621,577 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 14-Feb-2017 16-Feb-2017 26-Jul-2019 30-Jun-2021 31-Dec-2022 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 23-Jun-2021 22.25 Change in Results Framework Change in Components and Cost Change in Loan Closing Date(s) Change in Implementation Schedule KEY RATINGS Outcome Bank Performance M&E Quality Moderately Satisfactory Moderately Satisfactory Modest RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 17-May-2017 Satisfactory Satisfactory 6.60 Page 2 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) 02 08-Dec-2017 Satisfactory Satisfactory 18.60 03 13-Jun-2018 Satisfactory Satisfactory 18.91 04 14-Dec-2018 Satisfactory Satisfactory 19.22 05 22-Jun-2019 Moderately Satisfactory Moderately Satisfactory 19.59 06 31-Dec-2019 Moderately Satisfactory Moderately Satisfactory 19.59 07 29-Jun-2020 Moderately Satisfactory Moderately Satisfactory 19.81 08 07-Jan-2021 Moderately Satisfactory Moderately Satisfactory 19.99 09 15-Jul-2021 Moderately Satisfactory Moderately Satisfactory 22.35 10 19-Jan-2022 Moderately Satisfactory Moderately Satisfactory 22.87 11 14-Aug-2022 Moderately Satisfactory Moderately Satisfactory 23.41 12 12-Dec-2022 Moderately Satisfactory Moderately Satisfactory 23.99 SECTORS AND THEMES Sectors Major Sector/Sector (%) Financial Sector 100 Insurance and Pension 90 Public Administration - Financial Sector 10 Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Finance 100 Finance for Development 100 Disaster Risk Finance 100 Environment and Natural Resource Management 50 Climate change 50 Adaptation 50 Page 3 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) ADM STAFF Role At Approval At ICR Regional Vice President: Victoria Kwakwa Manuela V. Ferro Country Director: Michel Kerf Stephen N. Ndegwa Director: Sebastian-A Molineus Hassan Zaman Practice Manager: Jennifer Isern Cecile Thioro Niang Radu Tatucu, Dara Malia Task Team Leader(s): Michael J. Goldberg Lengkong, Thu Hang Vu ICR Contributing Author: Thu Hang Vu Page 4 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A. CONTEXT AT APPRAISAL Context 1. Many of the PICs are among the most natural disaster-prone countries in the world. Eight of the PICs – Fiji, Vanuatu, Tonga, Solomon Islands, the Federated States of Micronesia, the Republic of Marshall Islands (RMI), Cook Islands, and Niue – are among the 15 most at-risk countries in the world when it comes to natural disasters1. Moreover, they are also among the top 20 countries in the world when calibrating their average annual disaster losses to GDP. The frequent occurrence of natural disasters, such as tropical cyclones, earthquakes, volcanic eruptions, and tsunamis, affect entire economic, human, and physical environment of PICs. These events have impacted the PICs long-term development agendas. From 1950 to 2009, storm and earthquake damage cost PICs an estimated US$7.2 billion (World Bank 2010). A tsunami that hit Samoa in September 2009 generated damage and loss in excess of US$120 million, or 22 percent of gross domestic product (GDP); and a tropical cyclone hitting the country four years later caused damage and losses in excess of US$195 million, or 35 percent of GDP (Government of Samoa, 2010 and 2014). 2. The Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) Project was established with the aim of improving access to post-disaster rapid response finance for Pacific Island Countries (PICs). The Project built on earlier initiatives, including an initial phase launched in 2007, which aimed to provide PICs with disaster risk assessment and financing tools for enhanced disaster risk management and climate adaptation. Following this initial phase, the PCRAFI Insurance Pilot Program was launched in January 2013, with the aim to reduce the financial vulnerability of PICs to natural disasters by using parametric insurance as a mechanism to provide immediate cash to Governments in the aftermath of a major natural disaster such as a tropical cyclone, earthquake, or tsunami. Moreover, the World Bank’s Pacific Disaster Risk Finance and Insurance (DRFI) Program received high-level government support among PICs. 3. At the onset of the PCRAFI project, PIC governments faced significant challenges following natural disasters, including securing access to short-term immediate financing for emergency response and maintenance of essential government services until additional resources become available. PICs had few options for raising quick liquidity at the onset of a disaster because of their small size, limited borrowing capacity, and limited access to international insurance markets. The small size of PICs also tends to rule out geographic diversification of risk: subsidizing affected regions using revenues from unaffected regions is nearly impossible. High transaction costs, the inability to spread risk over a large territory, and the relatively small size of local economies keep insurance penetration in the region to a minimum. In the absence of easy access to debt and well-functioning insurance markets, a large proportion of the economic losses stemming from adverse natural events has been borne by governments and households, as well as through bilateral donor assistance. Last, but not least, alternative disaster risk insurance products such as catastrophe deferred drawdown option (CAT DDO) or contingent disaster financing (CDF) were not available to PICs prior to the onset of the PCRAFI Project. 1 United Nations Office for the Coordination of Humanitarian Affairs, https://www.humanitarianaction.info/article/pacific-islands. Page 5 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) 4. The PICs decided to establish the Pacific Catastrophe Risk Insurance Company (PCRIC) as a legally independent entity to manage the PCRAFI Insurance Program on October 29, 2015. At the 2015 Forum Economic Ministers Meeting (FEMM) in Cook Islands, the Finance Ministers of the PICs agreed to establish an independent PCRAFI entity to provide disaster and climate risk insurance to the region. During the twenty-first Conference of Parties (COP21), as part of the G7-championed InsuResilience initiative (which aims to see 400 million people with access to insurance against climate and disaster related insurance), the PICs, with support from the World Bank (WB), secured several donor pledges to support the establishment and operations of the PCRIC. This marked a significant scale-up in the work on increased financial resilience and country ownership of the disaster risk financing agenda by the PICs. 5. The optimal structure to meet the needs of the PICs was found to be a Foundation – the Pacific Catastrophe Risk Insurance Foundation (PCRIF) - with a special purpose vehicle (SPV) in the form of a captive insurance company (PCRIC), both of which were legally established on June 10th, 2016. Several options for the management structure were analyzed in a technical background paper including legal due diligence on the domicile of the PCRIC. The best fit was found to be a Foundation, created for the purposes of establishing a collective which then owns a captive insurance company (See Figure 1 below) and this structure was decided upon to ensure high ownership by the PICs. While the PCRIF’s role was to establish the SPV, appoint the Board of Directors, and oversee the approval of the PCRAFI Operations Manual, of new members, of the annual audited accounts, PCRIC’s role was to manage the PCRAFI Program, as well as be responsible for product development and fund management. 6. The Cook Islands were identified as host jurisdiction for the PCRIC due to the strong regulatory framework appropriate for hosting such a company. A captive insurance company, which is a legally independent entity, only exists to serve the insurance needs of its members – the PICs, in this case. Such companies have special legislation, and the Cook Islands was found to have the strongest regulatory framework within the region for hosting such a company, as determined by the Financial Action Task Force (FATF) 40+9 assessment regarding money laundering and terrorist financing (ML/TF) and by the International Monetary Fund’s (IMF) “Assessments of Financial Sector Supervision and Regulation.” These evaluations include analysis of the respective legal and regulatory frameworks for insurance companies. Moreover, the insurance legislation and supervision of Cook Islands recognizes the particular needs of international reinsurers. In addition, they have experience as Pacific-based offshore financial center. This is reflected in the existence of specialized regulation and legislation for offshore financial sector companies and in the long-term presence of international financial sector companies, particularly insurers. Figure 1. Entity Relationship Diagram for the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) Page 6 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) The Role of the World Bank 7. The PCRAFI Multi-Donor Trust Fund (MDTF) (TF072622) financed the PCRAFI Project (P161533) that in turn financed: (i) the establishment and operations of the PCRIC and the PCRIF, (ii) capitalization of the PCRIC (iii) institutional capacity building; (iv) product development; and (v) monitoring and evaluation. The PCRIC is a dedicated entity designed to provide disaster and climate related insurance to the PICs and to build capacity in both the private and public sectors while helping to minimize the cost of premiums, in order to support the development of the disaster risk insurance market in countries where it is difficult to achieve economies of scale. The Pacific Resilience Program (PREP) (via P154839, P154840, P155256, and P155257 for Samoa, Tonga, Vanuatu, and Marshall Islands, respectively), is a regional program that was launched in 2015 and provided co-financing for premiums for the PICs, complemented by a contribution from their national budgets. The finance provided by PREP provided premium subsidies for these four countries until October 31, 2018, subsequently extended until October 31, 2023. 8. The World Bank was requested by PICs to provide technical assistance and support the capitalization and operationalization of the PCRIC. The project supports the transfer of grants from the PCRAFI Multi-Donor Trust Fund (MDTF) (TF072820) administered by the World Bank to capitalize and operationalize the PCRIC as an independent entity. The World Bank is not part of the governance structure of PCRIC. Theory of Change (Results Chain) 9. The Project was designed to improve access to post-disaster rapid response finance to PICs by ensuring PCRIC was an operationalized entity capable to make a full insurance payout within 30 days from the occurrence of an insured natural disaster and capable to sustain a 1-in-200-year insured loss. Over the longer term, the Project aimed to enhance the financial resilience of PICs, increase the penetration of the insurance sector in PICs, and improve the Page 7 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) financial response capacity of PICs. While the Project’s Program Appraisal Document (PAD) did not include an explicit Theory of Change, the ICR team constructed the Theory of Change based on desktop review of project documents and face-to-face and virtual interviews with the key stakeholders and counterparts (Figure 2). Figure 2 – Theory of Change Project Development Objectives (PDOs) 10. The original PDO as stated in the Legal Agreement and replicated in the PD was “to improve access to post-disaster rapid response finance for Pacific Island Countries”. Key Expected Outcomes and Outcome Indicators 11. The key expected long term outcomes of the project include enhancing the financial resilience of PICs against natural disasters, increasing the penetration of the disaster risk insurance sector in PICs and improving the financial response capacity of PICs. The PDO, as phrased in the Legal Agreement is supported by three key indicators, as well as two intermediate results indicators. (Table 1) Page 8 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) Table 1. PDO and PDO Key Indicators at Approval Project Development PDO Key Indicators Baseline Target Objective (2021) Pacific Catastrophe Risk Insurance Company No Yes (PCRIC) operationalized PCRIC makes full insurance payout within 30 days No Yes To improve access to of the occurrence of a covered (insured) event post-disaster rapid The claims-paying capacity of the PCRIC is enough No Yes response finance for to sustain a 1-in-200-year insured loss Pacific Island Countries Intermediate Results Indicators Number of insurance products developed 0 2 Number of workshops/conferences organized 0 3 Components 12. At approval, the project had five components to be executed by four recipients: PCRIC, PCRIF, The Pacific Community (SPC) and Pacific Islands Forum Secretariat (PIFS). The first component (total of US$1.3 million) referred to the establishment and operations of PCRIC and the PCRIF. The second component (total of US$20.1 million) referred to the capitalization of the PCRIC, with two sub-components – shareholder capital of the PCRIC and capitalization funds for the PCRIC. The third component (total of US$2.3 million) covered institutional capacity building on disaster risk finance and insurance. The fourth component (total of US$5.5 million) covered the development of disaster risk insurance products. The fifth component (total of US$0.53 million) included the establishment of a monitoring and evaluation (M&E) system for payouts. (Table 2) Table 2. Project Components at Approval Component Recipient Total (US$ million) 1. Establishment and operations of the PCRIC and PCRIF PCRIC, PCRIF 1.3 2. Capitalization of the PCRIC 20.1 2a. Shareholder capital of PCRIC PCRIF 0.1 2b. Grant income PCRIC 20 3. Institutional capacity building on disaster risk finance 2.3 and insurance 3a. Institutional capacity building on hazard and SPC 1 exposure database 3b. Institutional capacity building on disaster risk PIFS 1.3 finance Page 9 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) 4. Development of disaster risk insurance products 5.5 4a. Development, refinement and PCRIC 3.5 implementation of geophysical and climate- related risk insurance products 4b. Update the hazard and exposure database SPC 2 which underpins the insurance transaction 5. Monitoring and Evaluation PCRIC 0.53 Grand Total 29.73 Beneficiaries 13. The Project had three sets of beneficiaries: primary, secondary and indirect. The primary beneficiaries of the Project were the Ministries of Finance (particularly the Budget Section, Debt Management Department, Fiscal Department, and Insurance Supervisory Department) of the PICs. Moreover, PCRIF was a direct beneficiary of the Project since it received funds to subscribe to the shares in the PCRIC. Similarly, PCRIC was a direct beneficiary since it received a grant for establishment and operations. The secondary beneficiaries were the private insurance and reinsurance companies and brokers interested in developing business in the PICs. Indeed, these companies benefited from the risk market infrastructure developed under the Project, including the catastrophe risk models for the PICs. Last, but not least, the indirect beneficiaries of the Project were the participating PICs populations at large, who ultimately benefited – in the case of an insured event – from the rapid response of the government funded by the insurance payout. B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) Revised PDOs and Outcome Targets 14. The project was restructured in June 20212. While the PDO of the project and long-term expected outcomes remained the same, several components of the project were dropped, some of the PDO result indicators were revised, one was dropped, four indicators were added, and the Project closing date was extended by 18 months until December 31, 2022. Revised PDO Indicators 15. The project’s PDO indicators underwent several changes as follows: among the PDO key indicators, a new indicator was added on the projected increase in PCRIC’s total equity through FY24. Moreover, among the intermediate results indicators, three new indicators were added: i) the number of additional countries purchasing insurance per season, ii) PCRIC’s capitalization to reach US$20 million by 2022, and iii) the monitoring and evaluation being conducted; one was revised: the number of insurance products was increased from two to three; and one was dropped: the number of workshops/conferences organized. The revised PDO Key Indicators and Revised Intermediate Results Indicators are summarized in Table 3 below. 2Project Restructuring Paper, disclosed on June 23, 2021, available https://documents.worldbank.org/en/publication/documents- reports/documentdetail/145211624446071100/disclosable-restructuring-paper-pcrafi-furthering-disaster-risk-finance-in-the-pacific- p161533 Page 10 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) Table 3. Revised PDO Key Indicators after Project Restructuring T Project Development Revised PDO Key Indicators after Restructuring Baseline Target Objective (2022) Pacific Catastrophe Risk Insurance Company No Yes (PCRIC) operationalized PCRIC makes full insurance payout within 30 days No Yes of the occurrence of a covered (insured) event The claims-paying capacity of the PCRIC is enough No Yes to sustain a 1-in-200-year insured loss To improve access to New Indicator: PCRIC total equity is projected to No (2021) Yes post-disaster rapid increase through FY24 response finance for Pacific Island Countries Revised Intermediate Results Indicators New Indicator: Number of additional countries 3 (2021) 5 purchasing insurance per season New Indicator: PCRIC capitalization (Amount, 0 US$20m USD) Revised indicator: number of insurance products 2 3 developed New indicator: Monitoring and evaluation No (2021) Yes conducted Revised Components 16. The Restructuring Paper proposed three key changes to the project: i) extending the closing date of the PCRIC Grant Agreement TF0A4171 by 18 months to December 31, 2022; ii) dropping components 3a, 3b, and 4a given that no Grant Agreements had been signed with SPC and PIFS; and iii) revising the Results Framework to bet ter measure PCRIC’s financial sustainability. 17. The decision to drop Component 3a: Institutional Capacity Building on Hazard and Exposure Database, Component 3b: Institutional Capacity Building on Disaster Risk Finance, and Component 4b: Development of Disaster Risk Insurance Products Update – Hazard and Exposure Database was motivated by the fact that no activities had been undertaken by SPC or PIFS and no funds had been disbursed under these three components. Table 4 below summarizes the revised allocation of project funds at the time of the restructuring, along with the updated project components. Page 11 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) Table 4. Revisions to Project Components and Allocations after Restructuring Component Recipient Original Allocation as of Proposed Allocation June 2021 Allocation (US$m) (US$m) (US$m) 1. Establishment and operations of PCRIC 1.3 2.89 3.54 the PCRIC 2a. Shareholder capital of PCRIC PCRIF 0.1 0. 0.1 2b. Capitalization funds for the PCRIC PCRIC 20 20 20 3a. Institutional capacity building on SPC 1 1 0 hazard and exposure database 3b. Institutional capacity building on PIFS 1.3 1.3 0 disaster risk finance 4a. Development of disaster risk PCRIC 3.5 2.29 1.54 insurance products 4b. Development of disaster risk SPC 2 2 0 insurance products – Hazard and Exposure Database 5. Monitoring and evaluation PCRIC 0.53 0.15 0.25 Grand Total 29.73 29.73 25.43 Other Changes 18. To sum up, in June 2021, the Project was restructured and underwent changes to the Results Framework, Components and Cost, Loan Closing Date, Disbursement Estimates and Implementation Schedule. Everything else, including the PDO, remained the same as at the time of the Project’s approval. Rationale for Changes and Their Implication on the Original Theory of Change 19. The rationale for the project restructuring was two-fold. First, the decision to drop components 3a, 3b, and 4b was motivated by the fact that until June 2021, no Grant Agreements had been signed with PIFS and SPC. Second, with the project’s 18-month extension from June 2021 until December 2022, the team felt that PCRIC would have more time to complete the intended activities within the closing date of the grant, which was to have a positive impact on the key factors that contribute to its long-term sustainability. Indeed, although PCRIC had made progress in operationalizing its core functions, its path to long-term sustainability was impacted due to delays hiring a chief executive officer who understands the clients and regional dynamics, with investing its capitalization funds for investment income generation, capacity building, product development, client outreach and regional engagement. Page 12 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) These in turn translated in PCRIC’s reduced ability to increase premium income, which was further impacted by the COVID-19 pandemic. 20. At the time of the Project’s restructuring, PCRIC had made important progress towards becoming sustainable over the long-term in four main ways: i) improved governance, including the recruitment of a CEO who provided much- needed leadership and assembled a team to support him in implementing the company’s business plan; ii) the company had managed to invest its capital and, under the main projections, it was expected to generate around US$2.1 million in returns over the July 2021-June 2024 period; iii) the company developed a new excess rainfall product, following up on a feasibility study supported with World Bank TA, which was set to enter the market during the 2022/2023 tropical cyclone season; and iv) further business has been developed with several PICs3 for new products and donor partners – including Germany and the UK – indicated their interest in providing premium subsidies for catastrophe insurance in the Pacific in case there was demand from PICs. All of these warranted the project extension by 18 months, as it gave PCRIC additional time and financial resources to make progress toward long-term sustainability. II. OUTCOME A. RELEVANCE OF PDOs Assessment of Relevance of PDOs and Rating Rating: High 21. The project development objective of the PCRAFI project is to improve access to post-disaster rapid response finance for Pacific Island Countries (PICs). The PDO was relevant at the outset of the project implementation and remains relevant in the current context and challenges facing the PICs. The PICs are highly vulnerable to disaster events including tropical cyclones, earthquakes, volcanic eruptions, tsunamis, etc. The past few years have seen devastating disaster events in Tonga and Vanuatu and the associated social, economic, and fiscal impact on these small island economies has been significant. Climate change adds more challenges to the region with higher temperatures, sea level rising, and other slow-onset events such as droughts, heat, etc. In addition, the COVID-19 pandemic also exposed the region to more vulnerabilities in terms of health, social and fiscal resilience. 22. At the onset of the project, these small economies had very limited access to post-disaster rapid response finance except for simple budgetary instruments such as contingent budget, budget reallocations, or donor assistance. The PICs have very tight fiscal space, limited borrowing capacity, undeveloped local insurance and financial markets, and limited access to international reinsurance or capital markets. The only access to international reinsurance markets was through the pilot catastrophe swaps intermediated by the World Bank Treasury before this project. In addition, there was no institution in the region that could provide market-based disaster risk finance solutions including insurance to the PICs prior to the Project inception. Therefore, access to post-disaster quick liquidity fits very well into the PICs’ disaster risk financing arrangements. 3Several PICs expressed in letters to the World Bank that they were interested in purchasing new catastrophe insurance products that meet their needs, including Fiji (household level products), Tonga and Samoa (excess rainfall products), and RMI and Samoa (drought). Page 13 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) 23. The PDO remains relevant to the PICs in the regional and country contexts as the risk financing landscapes continued to evolve over the course of project implementation. Over the last few years, the PICs experienced unprecedented impacts from the COVID-19 pandemic which has caused further strains on the countries’ fiscal space, households and firms’ finances. Some PICs, such as Tonga, experienced or were susceptible to the compounding impacts from both the volcanic eruption, tsunami and the health shocks. The regional socio-economic and geopolitical context has also changed with renewed interest and competing attention on the region which has resulted in significant investments in the region including in the areas of resilience and climate change4. The past couple of years have seen an evolution in disaster risk financing landscapes in the Pacific with the introduction of CAT-DDO by the World Bank, the contingent disaster financing (CDF) by the Asian Development Bank as well as micro- and meso- insurance products supported by the United Nations Capital Development Fund (UNCDF). The emergence of these new instruments in the region created more options at different costs of funding for the PICs in terms of improving access to post-disasters. Discussions with countries that are current or lapsed clients of PCRIC indicate that the project’s PDOs still remain relevant, and the products provided under the project are complementary to other solutions when countries have clear financing strategies for different layers of risks (by frequency and severity of events) and identified their financing gaps. The project is also relevant in the sense that risk transfer mechanisms offered by PCRIC help enhance countries’ fiscal disciplines as the instrument incentivizes the countries to think ahead and pre-arrange these ex-ante instruments, ensure that they have their skin in the game with minimum premium contribution from their budget, send price signals to the countries about the resilience of their economies and crowd in the much needed private financing to complement the public sector’s tight funding. Looking forward, PCRIC can provide clear value propositions to the PICs to stay relevant given that the needs for post-disaster financing go beyond rapid response financing. 24. The project is highly relevant to the Bank’s broader corporate objectives of fighting climate change and enha ncing resilience against external shocks. It also contributes to private capital enabling and mobilization by crowding in the (re)insurance and capital markets through promoting public-private partnerships to fill in the financial protection gap and open new markets and opportunities for private solutions. The project is also consistent with the Bank’s strategy to promote innovative products to manage the risks including risk transfer mechanisms, especially in the recent context of the evolution roadmap. The project is aligned with the World Bank Group’s East Asia and Pacific Regional Strategy 5 presented to the Board in February 2016. The proposed project particularly links to the strategic priority of “Climate Change and Disaster Risk Management through resilient investments and Disaster Risk Financing and Insurance”. In particular, the project helps increase the countries’ disaster preparedness and climate resilience through better financial preparedness and enhance the government’s fiscal resilience to climate and disaster risks. 25. The project was also aligned with WBG’s Regional Partnership Framework (RPF) 2017 -2021 where strengthening resilience, including financial resilience, against climate and disaster risks is an important theme under focus area #3 of protecting incomes and livelihoods. The project contributes to the implementation of this focus area through support to regional and country level activities including further institutionalization of PCRAFI through the establishment of a permanent facility for risk financing and employment of parametric insurance as a mechanism to inject a limited supply of liquidity following a major tropical cyclone, earthquake, or tsunami to help the affected governments with early response and recovery efforts. These efforts are complemented by the Pacific Islands 4 https://asia.fes.de/news/geopolitics-pacific-islands 5 World Bank. 2016. East Asia and the Pacific. Overview - strategy. Page 14 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) Resilience Program (PREP) that focused on strengthening early warning and preparedness and investments in resilience including those to retrofit key public buildings to international standards. B. ACHIEVEMENT OF PDOs (EFFICACY) Rating: Substantial before Project restructuring and Modest after Project restructuring Assessment of Achievement of Each Objective/Outcome 26. The objective and the associated PDO as set forth in the PAD and ISRs were mostly achieved. The three original PDOs indicators were met and the fourth PDO indicator added at Project restructuring has not been fully met. Before Project Restructuring 27. The project successfully supported the PICs to establish and operationalize the PCRIC and PCRIF by providing funds for set-up and operational expenses so that these vehicles can operate and provide disaster and climate risk insurance for the PICs. The project reimbursed the PCIF for pre-financing the shareholder subscription to capitalize the PCRIC (US$0.1 million) to satisfy the regulatory conditions in order to obtain the captive insurance license for PCRIC. With this, PCRIC was domiciled and licensed in the Cook Island for the purpose of providing disaster and climate insurance to the PICs. The project also provided funds for the PCRIC to be able to generate some income from the capitalization funds, make payout rapidly to the countries including reinsurers’ recoverables and retain part of the risk after the rest has been transferred to the reinsurance market. PCRIC was fully operationalized through the hiring of a board of directors, an insurance manager, a CEO – despite a period of interruption when the first CEO stepped down, as well as consulting and professional service providers. 28. PCRIC maintains a high level of claims paying capacity throughout the project. The Company is well capitalized with funding from the project and purchases a high level of reinsurance from rated reinsurers to ensure the Company’s solvency in line with regulatory and WB project requirements. As of December 2022, PCRIC has over US$25 million in capital and purchases excess of loss reinsurance on the portfolio of policies with a deductible of US$1.25million and a limit of US$11.75 million. The reinsurance limit is equivalent to a 1-in-500 year event for the Company, which is in excess of the 1-in-200 years insured loss target. This far exceeds the expected return period of 1-in-200 years in the ISRs. Even in an extreme event, i.e. a 1-in-10,000 year event for the entire portfolio of policies, assuming maximum payouts to all three insured governments against their tropical cyclone policies, it is expected to result in a loss of US$3.8 million to PCRIC. Such a loss could be covered the Company’s capital. 29. Beneficiary countries received insurance payouts from PCRIC in less than 30 days from PCRIC. In the last few years, PCRIC made payouts of up to US$8 million to member countries including Tonga. Countries have used the proceeds for the purposes of providing food, medicine, shelter for the affected people, supporting micro businesses in recovery from the tropical cyclones, especially those in the tourism sector, and supporting households whose crops have been damaged. After Project Restructuring Page 15 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) 30. PCRIC has yet to achieve the projected increase in equity as at the end of Project. It was envisioned at Project restructuring that the Company will grow its client base and diversify its portfolio with new products to achieve greater impact and sustainability. As the project closes in December 2022, the Company’s equity capital has not been increased as envisioned. However, PCRIC has been actively expanding and deepening its relationship with the countries, especially in offering new products with support from donors in premium financing. A few countries have expressed interest in buying these products including Fiji and Marshall Islands which will help the Company grow its capital base when these countries purchase the coverage. Other Intermediate Result Indicators 31. The Project provided funds to support PCRIC in the development, refinement, and implementation of two disaster risk insurance products. These include parametric geophysical insurance against major geophysical events and associated sub-hazards, parametric climatic insurance against hydro-meteorological events, and mutual disaster risk insurance such as hybrid disaster risk insurance to cover medium-sized disasters. PCRIC designed insurance coverage against earthquakes, earthquakes-induced tsunamis, and tropical cyclones and provided the policy to Tonga, Samoa, and Cook Islands from inception until today. Two other PICs discontinued buying coverage in 2017 and 2018. Excess rainfall and drought insurance products were developed and are expected to be launched by the end of 2023. Justification of Overall Efficacy Rating 32. Most of the Project outcome indicators have been met. Three out of four PDO-level indicators have been successfully achieved before Project restructuring, while the fourth one on increased capital has not been fully met after Project restructuring and prior to Project closing. The project has successfully established and operationalized the PCRIF and PCRIC so that PCRIC can provide insurance products to the PICs. This is a significant achievement given that such a regional institution did not exist, and the PICs did not have access to such risk finance products provided before Project inception. PCRIC has been well capitalized and is in strong financial health to be able to withstand large extreme losses with the ability to pay out within 30 days and claim paying capacity higher than required by the regulations and Project requirements. Insurance policies have been sold to 3 PICs (Tonga, Samoa and Cook Islands) for tropical cyclones and earthquakes/tsunamis. Indeed, two countries – Vanuatu and Tonga – received payouts within 30 days and utilized the payouts for response and recovery purposes, with Tonga having received several payouts6. PCRIC has had regular buyers – Tonga, Samoa and Cook Islands – which have been purchasing PCRIC’s insurance products on a yearly basis. Samoa and Cook Islands have not received a payout so far. Last, but not least, the nature of parametric insurance is such that a payout is made when a certain trigger has been met, which has been the case in the four payouts made by PCRIC. PCRIC has also lost buyers – Marshall Islands, Vanuatu and Solomon Islands. The remaining indicator of projected increase in equity through FY24 has not been achieved by the end of 2022; however proactive efforts are being made to expand its clientele and grow the product portfolio. 6 According to PCRIC’s website, “to date, four payouts have been made for an aggregate amount of more than US$11 million. Two were made under PCRAFI (TC Ian, 2014, Tonga, $1.27m & TC Pam, 2015, Vanuatu, $1.9m) The other half were made by PCRIC (TC Gita, 2018, Tonga, $3.5m & TC Harold, 2020, Tonga, $4.5m) These payouts, all received immediately post-disaster(s), were the first financial injections of emergency funds made into each country.” (https://pcric.org/) Page 16 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) C. EFFICIENCY Rating: Substantial Assessment of Efficiency and Rating 33. PCRIC provides cost savings despite still being grant-reliant to provide coverage for the PICs. The team would like to note that a standard economic and financial analysis on the Project’s impact on the catastrophe risk insurance sector was not carried out during preparation, as the sector was non-existent prior to this Project. PICs rely on donors’ grants to sustain their operations and to fund premiums for countries. Currently member countries contribute about 10% of premium, the rest is provided by donors via the PREP Project, which concluded in the current season. Despite this, the cost savings to countries, thanks to buying insurance policies from PCRIC, is still greater than if the countries would have retained the risk on their own budget (see paragraph below for more analysis). However, the upfront financial cost of buying insurance through PCRIC may be higher when compared to CAT DDOs, as CAT DDOs are fully funded by grants from donors. However, in non-financial terms, the values of risk transfer, including the use of grants to subsidize premiums, can go beyond financial numbers, including the incentives it provides the PICs when it comes to enhancing fiscal disciplines, incentivizing investment into risk reduction as well as building regional self-reliance and ownership of the agenda and financial vehicle. The use of grant financing for premium also helps crowd in private sector capital for financing post-disaster response and recovery, through insurance payouts, while use of such grants under CAT-DDO may encourage countries’ overarching and systemic reforms to the disaster risk management agenda. 34. PCRIC is an efficient vehicle through which members can reduce their financial vulnerability to natural catastrophes. At the time of appraisal, it was estimated that PCRIC insurance could facilitate saving of 49% to 73% to PICs participating in the insurance program when compared to the cost of self-insurance. A reassessment for this ICR based on current market conditions shows that further saving is available: PCRIC insurance coverage is 68% to 85% less expensive than self-insurance with current marginal cost of capital (Table 5). The additional average saving of 16% shows that PCRIC has outperformed the original estimates of the cost savings that it would provide7, and reconfirms that participating in PCRIC is an efficient way for its members to reduce their financial vulnerability to natural catastrophes. The paragraphs below describe the methodology of the reassessment. Table 5: Comparison of original estimates of PCRIC savings with estimates of achieved savings All disaster risk type Appraisal Current (actual) estimation range estimation range Savings made by insuring with 49%-73% 68%-85% PCRIF vs self-retention Source: Estimates based on PCRIC gross written premium in annual reports 7 Saving is calculated based on PCRIC insurance policies purchased by participating countries from 2017-2021. Page 17 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) Methodology of reassessment 35. The financial benefits of participation in PCRIC can be assessed through a comparison of the long-term average price of the insurance coverage with the cost of self-insurance. Self-insurance involves setting aside money such as financial reserve to pay for a possible loss instead of purchasing the insurance and expecting PCRIC to reimburse the associated cost in the event of eligible event. Participating in PCRIC saves money in the case when insurance premium is less than the cost of self-insurance. Country would self-retain the same amount of catastrophe risks because insurance was not available in the domestic insurance market for each individual country. Coverage on reinsurance was made available through PCRIC as risk pool. 36. The cost of self-retention if the country had to retain this risk (because direct insurance was not available) through reserves is estimated as the annual average loss plus the opportunity cost of reserves for the same risk covered by PCRIC. Annual average loss is estimated by assuming 1.4 has been the pricing multiplier throughout the policy period. The opportunity cost of reserves is equal to the amount of reserves necessary to provide a payout which is equal to the coverage limit at the exhaustion point of a country’s PCRIC coverage, multiplied by the marginal opportunity cost of capital. It is estimated the average marginal opportunity cost of capital for PCRIF countries is 16 percent as at May 2023.8 D. JUSTIFICATION OF OVERALL OUTCOME RATING Rating: Moderately Satisfactory 37. The overall outcome rating was rated Moderately Satisfactory based on weighted combination of relevance, efficiency, efficacy ratings before and after Project restructuring. Weighting used for overall outcome rating was the disbursement rate of 87% before and 13% after Project restructuring. (Table 6. Use of Split Rating to Calculate Overall Outcome Rating) Table 6. Use of Split Rating to Calculate Overall Outcome Rating Original PDO Revised PDO Relevance High Efficiency Substantial Efficacy Substantial Modest Overall Outcome MS (Score 4) MU (Score 3) Rating Disbursement Before 87% 13% and After Restructuring “Weighted” Overall 0.87x4 + 0.13x3 = 3.87 MS Outcome Rating (Rounding to 4) 8 The average marginal cost of capital for PCRIC participating countries reflects for the recent increase in lending interest rate. Page 18 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) 38. Financial protection through risk transfer mechanism for disaster and climate risks is relevant for the PICs in the current context. The PICs are highly vulnerable to disaster events including tropical cyclones, earthquakes, volcanic eruptions, tsunamis, etc. Climate change only adds more challenges to the region with higher temperatures, sea level rising, droughts, etc. PICs nowadays can access more instruments other than risk transfer; however fiscal space remain limited and funding needs keep increasing over time given the increasing and inflationary costs of damage as well as a rapid increase in the base of asset values. Therefore, financial protection gaps remain in the countries. Addressing these financial protection gaps requires a mix of public and private financial instruments and products, as well as policy and system reforms to enable the efficient use of such instruments. PICs are aware to a greater extent now than a few years ago that one single instrument cannot address all the funding gaps and cost-efficient combination of various instruments including budget, credit (CAT DDOs, conventional loans) and risk transfer should be pursued, although in practice there is a tendency to pick one product over others. Several countries, for example Tonga and Samoa, have developed their disaster risk finance strategies with support from the Project, and others are moving in this direction including Solomon Islands, Marshall Islands, etc. Under such strategies, for instance, parametric insurance such as the one offered by PCRIC can be used for higher severity and less frequent layers of events and requires a very specific event trigger (e.g. tsunami caused by earthquake, not by volcanic eruption; typhoon / tropical cyclone above a certain intensity) for a payout to take place. A CAT DDO can be used to finance events of medium size with “softer” trigger – e.g. the declaration of a state of emergency made by the government of a country. Similar to parametric insurance provided by PCRIC, CAT Bonds can be used for less frequent and high severity events and can be locked in for longer period of coverage with institutional investors which is usually 3 years for a CAT Bond vs. 1 year typically for parametric insurance. In addition, CAT bonds do not pool catastrophe risks, while risk pools do by retaining a first risk layer and transferring excess risk on a portfolio basis to international reinsurers. Through buying PCRIC products, part of the countries’ premium will be retained under PCRIC’s reserves which will grow over time if there is no or few claims, while the premium paid under a CAT Bond will all go to the investors if no eligible event triggers a claim. The growth in PCRIC’s reserves allows to strengthen the company’s finances which will in turn benefit its member countries through potential lowering of premium or increase in coverage. 39. Products provided under the Project bring about significant savings to the member countries. PCRIC provides cost savings to the countries compared to their own self retention of the risk on their balance sheets. At the time of appraisal, it was estimated that PCRIC insurance could facilitate saving of 49% to 73% to PICs participating in the insurance program when compared to the cost of self-insurance. A reassessment for this ICR based on current market conditions show even higher savings to the countries: PCRIC insurance coverage is 68% to 85% less expensive than self-insurance with current marginal cost of capital. In non-financial terms, the benefits are not insignificant. Using risk transfer products help countries enhance fiscal disciplines, incentivizing investments into risk reduction, building regional ownership of the agenda and catalyzing private capital to close the protection gap. 40. Most development objectives of the project were achieved: (i) PCRIC and PCIF were established and fully operational and provide insurance policies to 3 PICs, (ii) PCRIC is well capitalized and is in strong financial health to be able to withstand large extreme losses in excess of 1-in-200-year losses, (iii) PCRIC has made payouts of up to US$8 million to member countries in less than 30 days. However, the financial sustainability indicator was not met by the end of 2022 due to many implementation factors including the transition of management and COVID-19 pandemics. Active efforts are being made to expand the client base and diversify its product portfolio. It is important to note that the successful establishment and operationalization of PCRIC is a major milestone to achieve the objective of improving access to liquidity following disaster events given that no such regional institutions existed before the Project. At least 3 countries have been able to access the products provided by PCRIC during the Project life. Page 19 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) E. OTHER OUTCOMES AND IMPACTS (IF ANY) Gender 41. The project was not gender tagged or did not have a gender component. Institutional Strengthening 42. One highlight of the project is the establishment of regionally owned institutions including PCRIF that provide convening services and coordinate policy dialogue on DRF and PCRI that provide disaster and climate risk insurance solutions to the PICs. From a lean start-up with all functions outsourced, PCRIF and PCRIC has grown into regional entity with in-house staffing most of whom come from the region. The governance of these entities has improved over time, and they have been participating in the regional Finance Ministers’ Process as a dedicated body on strengthening financial resilience in the region. PCRIF and PCRIC has demonstrated an example of a regionally owned and led initiative with strong representation in important regional processes and international fora. Mobilizing Private Sector Financing 43. The project contributes to the Bank’s maximizing finance for development and private capital mobilization objectives of crowding in the international (re)insurance and capital markets through PCRIC. It also facilitates the partnership between the public and private sector in closing the financial protection gap, lessening the burden on the government, opening new markets and opportunities for private solutions. PCRIC has mobilized up to US$8 million of risk capital from the industry for payouts to member countries. PCRIC has also leveraged expertise from the private sector including insurance management, investment advisor, asset management, risk modeling, reinsurance broking, legal and technology to help deliver solutions to and improve risk market infrastructure for participating countries. Without the project, there would have been no commercial risk modeling investments in the region given the small markets. Poverty Reduction and Shared Prosperity 44. The project contributes to the WBG’s twin goals of ending extreme poverty and boosting shared prosperity. In the aftermath of a severe disaster, the PICs experience major budget variability, disruption to public services, and impact on the lives and livelihood of the poor and vulnerable populations. By providing quick liquidity following a disaster, PCRIC enables beneficiary governments to minimize disruptions to government budgets and provision of critical public services, thereby strengthening emergency relief and recovery measures, preventing vulnerable populations from Page 20 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) falling deeper or back into poverty, ensuring the continuity of economic and business activities, and allowing for investments and planning to be pursued with a higher degree of confidence. PCRIC’s efforts to raise risk awareness and support insurance market development contribute to safeguarding development gains by facilitating risk- informed decision-making and increasing financial certainty across the populations and economies. Other Unintended Outcomes and Impacts N/A. III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A. KEY FACTORS DURING PREPARATION 45. The Project built on an earlier phase of the program that was launched in 2007. One of the goals of the prior engagement was to provide the PICs with disaster risk assessment and financing tools for enhanced disaster risk management and climate change adaptation. A key output of the previous engagement was the development of the Pacific Risk Information System (PacRIS), which contains information on the hazard, exposure, and vulnerability of fifteen PICs. Indeed, PacRIS included a database of over five million buildings and their attributes, being the largest of its kind in the Pacific. Moreover, PacRIS has been used to inform urban planning, as well as support the development of the PCRAFI Insurance Program. 46. The PCRAFI insurance pilot program was launched in January 2013 to help reduce the financial vulnerability of PICs to natural disasters by using parametric insurance as a mechanism to provide fast cash disbursements to PIC Governments in the aftermath of a major tropical cyclone and/or earthquake/tsunami. The Program made two payouts: the first one to Tonga, who received US$1.3 million after Tropical Cyclone Ian hit in January 2014, and the second one to Vanuatu, who received US$1.9 million following Tropical Cyclone Pam in March 2015. These payouts were among the first injections of cash received by the affected countries in the aftermath of a major natural disaster, and both were disbursed within ten days of the occurrence of the disaster events. 47. The design of the Project incorporated lessons learned from the CCRIF and SECCRIF. One key design feature of these insurance programs is the sustainability aspect, which requires actuarially sound pricing of reinsured risk, as well as the risk capital required to support it. Therefore, the Project was designed to utilize state-of-the art probabilistic and actuarial risk models, originally developed under the PCRAFI Program in 2007, but constantly updated under the product development component of the Project. 48. The PIC Governments’ ability to finance the premiums was - and remained - a challenge, despite their strong commitment to develop a sustainable catastrophe insurance program. PICs were new to market-based catastrophe risk insurance solutions, which represented a paradigm shift from heavy reliance on donor support in the aftermath of a natural disaster to risk-management planning in advance and securing funding through market-based solutions. Despite their strong commitment, their ability to fully finance their premiums was a challenge during preparation and remained a challenge during implementation. Page 21 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) B. KEY FACTORS DURING IMPLEMENTATION 49. Several factors affected PCRIC’s ability to raise sufficient revenues. Unlike retail insurance, PCRIC sells catastrophe insurance products to government clients in a few countries in the Pacific region. By virtue of its business model, successful revenue generation from insurance premiums requires significant efforts from the PCRIC management and staff to convince political counterparts, who are usually Ministers of Finance, about the benefits and limitations of purchasing the insurance product. During the implementation phase of PCRIC, several factors negatively affected PCRIC’s ability to raise sufficient insurance premiums to cover its operating costs. Those factors were related to staffing challenges, lack of ability to travel during the pandemic, the emergence of substitute insurance products and the stoppage of subsidized premiums for client countries, the lack of understanding of catastrophe insurance, and rejected insurance claims. 50. Setting up a new regional institution, which goes well beyond simply selling financial products, has been a challenging process. Indeed, it took PCRIC nearly five years to hire three full-time staff, while COVID-19 slowed deeper client outreach. Between inception in 2016 and 2020, there was very little client outreach by PCRIC under the former CEO, who was from outside the region and lacked political capital needed for engaging with government officials. Most of the operations were also outsourced, in the absence of other full-time staff. The current CEO, who comes from the region, understands the region well and enjoys political backing, was appointed in September 20209. He also hired two other employees from the region to reduce the burden of managing day-to-day operations as well as to enhance client outreach. However, the pandemic halted the ability to travel for in person meetings until mid- 2022, which is key to explain PCRIC products and attract new clients for insurance policies. 51. The emergence of a wide range of catastrophe insurance products, often perceived as close substitutes, also reduced demand for PCRIC products. Prior to the establishment of PCRIC, there was no catastrophe insurance in the region, and the PICs largely relied on bilateral and multilateral donors when hit by a major natural disaster. In the past few years, the catastrophe insurance landscape has been experiencing significant changes, with new players and products entering the market. For instance, the World Bank now offers Development Policy Loans with a Deferred Drawdown Option (Cat DDO); the United Nations Capital Development Fund (UNCDF) introduced the Pacific Insurance and Climate Adaptation Program; the Pacific Island Forum, is planning to launch the Pacific Resilience Facility. While these insurance products differ in terms of triggers and coverage, some PICs questioned the fit of PCRIC products in the whole DRF arrangements and might have perceived them as substitutes to PCRIC and question the merit of paying for insurance policies, while they can presumably access free grant money (e.g., Cat DDO). Finally, the indirect guarantors of support in the face of bilateral donors can always deter the purchase of catastrophe insurance, particularly, in the absence of heavily subsidized premiums. 52. The elimination of subsidized premiums will test the resilience of demand for PCRIC products. While the project was active, member countries have been receiving significant subsidies from donor partners and the World Bank towards the cost of purchasing insurance policies from PCRIC. While discussions to continue this support, funded by bilateral donors, are still ongoing, some country officials and PCRIC management have expressed concerns about the potential cessation of this crucial assistance. Given the tighter budgetary conditions, as well as potential ‘free of charge’ disaster risk insurance alternatives, these stakeholders believe premium subsidies will be needed, not only 9 Three and a half years after Project’s approval. Page 22 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) in the short term, but also beyond. 53. Changes in government officials and staff exacerbated the gaps in government capacity and highlighted the urgency for more sustained capacity building. Given the complex and technical nature of disaster risk insurance, most government counterparts of PCRIC lacked deep understanding of the insurance policies they were purchasing. Nevertheless, the efforts invested in educating client countries did not seem to match the much-needed capacity building demand in these PICs. Moreover, the lack of a PCRIC website as well as product brochures until recently, further contributed to information asymmetries, transparency, and lack of trust by government counterparts. Given these challenges, significant effort was needed from PCRIC and the Bank to enhance technical capacity in catastrophe risk insurance. Counterparts indicated a lack of technical assistance persisted to date, due to the lack of staffing and financing resources. These problems are further exacerbated when government counterparts change, which requires additional investment in building the technical capacity of new counterparts. 54. The lack of understanding of catastrophe insurance products, coupled with the unmet payout expectations, discouraged some clients from purchasing a policy or from remaining loyal buyers. The Solomon Islands, Vanuatu were the countries that purchased catastrophe insurance from PCRAFI Pilot Phase or later PCRIC, however did not receive payouts when major natural disasters struck. This was because the triggers for the actual disasters were different from the ones specified in insurance contracts, although the outcomes were the same. In the case of Tonga, there was a misunderstanding of the insurance terms and conditions regarding the exclusion of volcanic eruption that caused devastating impacts in the country. Nevertheless, these countries had expected, partly due to the lack of deeper understanding of the insured event risk triggers, to be paid insurance benefits. Upon discovering the details of the contract, which precludes the benefit payments, these clients were upset. While Tonga continued to purchased insurance from PCRIC, Solomon Islands and Vanuatu completely stopped from doing so. For these reasons, it became imperative that PCRIC explain the insurance product details better, and to better manage client expectations. 55. The Project implementation also took place within the context of a rapidly evolving DRF landscape in the region, which posed several challenges for PCRIC. Therefore, the capacity to adapt to the changing landscape was required of all stakeholders, especially PCRIC to adapt and adjust its value proposition when new DRF products come into play and potentially create a cannibalization effect, whether directly or indirectly. As highlighted in an independent external evaluation of PCRIC, there was a perception that PCRIC could not compete on a level-playing field with alternative DRF insurance products such as World Bank’s CAT-DDOs or Contingency Emergency Response Component (CERC), or ADB’s Contingent Disaster Financing (CDF). Only in the last couple of years, with the help of WB technical assistance, PCRIC’s pitch to potential clients evolved to highlight the need for a risk-layered approach to DRF solutions and the complementary nature of PCRIC’s products relative to the other DRF solutions available. Moreover, the independent external evaluation also highlighted important challenges and lessons related to the demand for and supply of PCRIC’s products, the issue of unmet payout expectations on a couple of occasions, the WB’s role in supporting PCRIC and difficult operating environment in the Pacific region, which posed unique challenges for PCRIC’s effective operationalization. Page 23 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 56. There was no Theory of Change at the Project Appraisal Document (2017). As described in previous chapter, the ICR team reconstructed ToC based on the situation at the ICR time (2023). Based on project development objectives (PDO), five (5) initial key results indicators were developed, these are divided into three (3) PDO key indicators and two (2) intermediate results indicators. However, due to absence of ToC since the beginning of the project, it affected the different understanding on the causal links between the activities and intermediate results and PDO indicators. Thus, it led to an inadequate overall project M&E design before the project restructuring. 57. The result framework before the project restructuring did not explain properly the contribution of project components toward achieving the PDO or PDO-level outcomes. There were no clear indicators to measure the component level achievement at the onset of the project. The result framework of the project was also built at the high or strategic level and using straightforward measurement, such as with “yes” or “no” answers. Thus, it made the M&E arrangement during the first 4 years of its implementation inadequate to provide sufficient information to monitor and assess the progress of the project. 58. The results framework after the project restructuring has improved and explained better the contribution of project components toward achieving PDO or PDO-level outcomes. The new project indicators introduced after the project restructuring has strengthened the ability of the project to show the critical results or achievement as the success of both the project and PCRIC. M&E Implementation 59. The Project M&E was implemented and reported regularly through the project implementation support mission (ISM) and report (ISR). ISM/Rs were conducted twice a year since the Project’s inception. The M&E data for this project was quite straight forward and using the high or strategic level indicators as its measurement, as shown in result framework or monitoring matrix (Table 3). The data is internal or administrative data. 60. After the hiring of PCRIC CEO in September 2020, PCRIC made significant progress in the Project component 5 which was establishing the Company M&E. PCRIC hired M&E specialist and developed the PCRIC Business Plan (July 2021-June 2023), which includes an M&E framework that aims to measure the progress of the Company along the PCRAFI project implementation trajectory. Since PCRIC developed its M&E, the Project M&E data measured and collected based on the current portfolio of PCRIC. Page 24 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) M&E Utilization 61. The M&E framework under PCRIC Business Plan has been used for reviewing the measurement of the PCRAFI project. Since 2020, based on the M&E, PCRIC published regularly their annual and quarterly reporting. These reports are used to inform the Board, as well as the Project management and PCRIC management teams, on the progress being made by the Project towards its PDO. 62. At the project closing, PCRAFI toward PCRIC had already implemented full M&E framework to track the progress of the PDO and intermediate result indicators. The counterpart continues to use the M&E tools to support tracking progress of program implementation and reporting of results achieved and allocate budget for the M&E which indicates a strong buy-in and commitment in continuing the M&E system introduced by the Project. Justification of Overall Rating of Quality of M&E 63. The Quality of M&E is rated as Modest. The PDO indicators and intermediate results (outcome) indicators at the initial stage of the project did not capture properly the contribution of project components toward the achievement of results. The new PDO-level indicator and the intermediate results indicators added after the project restructuring strengthen the links between the project components and PDO indicators. However, because the M&E before and after project restructuring was not designed with a Theory of Change, the understanding of the links between the interventions and PDO indicators could lead to different causal interpretation. The M&E implementation was only in place after 4 years of the Project intervention, and it was fully implemented after the Company CEO was on board. B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE 64. There are no safeguard policies triggered for this project. Fiduciary Compliance 65. Financial and procurement management performance is rated as Moderately Satisfactory. For nearly 4 years after the project’s inception until the current CEO came on-board, the financial management functions of the borrower side were being conducted by the consulting firm (i.e., Willis Tower Watson) on behalf of PCRIC. The fiduciary management was managed in the absence of any daily management by the CEO and support staff. From the fiduciary perspective, this way of management is an unusual practice of a Bank operation, and it has created problems between the Bank and Client relationship during the implementation. 66. The fact that the project activities had to be implemented while PCRIC was yet to be established was an unusual implementation arrangement and created difficulties that cascaded down the procurement arrangement. Given the procurement scope for PCRIC was not complex, it was decided during the project design that its CEO would oversee procurement related tasks. However, due to the long absence of the CEO, there was an extraordinary arrangement made using the Resident Director to oversee the project implementation including procurement and then end up being involved in project implementation. This continued until PCRIC’s new CEO was on board after a Project Coordinator was hired in 2019, and in February 2022, a full-time Finance and Planning Manager was recruited, Page 25 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) as the person primarily responsible of carrying the procurement related tasks. 67. The first financial and planning manager of PCRIC was hired in February 2022 followed by the hiring of the Regional Coordinator. Since their hiring, they conducted financial management, procurement functions, and support coordination of project related tasks. The transition between having the consulting firm manage financials to having local individuals hired raised issues on the quality of the consulting firm’s management including lack of internal control and other issues. 68. At the project closing, the PCRIC completed the final interim unaudited financial report (IFR) covering the period ending September 30, 2022, provided the external audit for fiscal year ending June 30, 2022, provided the financial budget for the remaining implementation period, maintained the activation of the designated account (DA), established procedures for the capitalization funds, and PCRIC financial stability as required by the World Bank following provision of capitalization funds to PCRIC. However, the breakdown of internal controls persists and capacity building on the project management is needed. 69. There is $710,000 of grant remaining undisbursed by the end of the project and $80,000 approved procurement plan, but never been implemented by PCRIC. These cases reflect PCRIC overall low capacity to implement the procurement of the activities. The remaining $710,000 undisbursed amount reflects PCRIC’s procurement inability to timely implement the procurement of activities within the last year of the project implementation. This lack of capacity was due to various reasons, such as CEO and team just got on board on the last 1.5 years before the project closing, Covid-19 pandemic restrictions period that slow down the activities, the project did not get approval for another extension, etc. While for $ 80,000 amount case, the Bank recommended PCRIC to drop the activities from the procurement plan as it is related to the ongoing work on PCRIC regulations. However, there was oversight problem at PCRIC on conducting the procurement plan in STEP that take longer time to process it. 70. A significant bottleneck identified throughout implementation was PCRIC’s lack of technical re sources to prepare terms of references in a timely manner. Procurement experienced often delays in TOR finalization and only 11 TORs for consulting contracts equivalent to USD1.5m (or 25%) were prepared on schedule. Thus, it raised doubts about the capacity of the implementing agency to implement this project. C. BANK PERFORMANCE Quality at Entry 71. There is limited information on the quality of entry at the time of ICR, as the internal stakeholders with leadership roles in the design of the project could not be interviewed. The key project staff and client stakeholders kept changing until the end of the project and only a few people with institutional memory could be interviewed. Based on the PAD, the design of the project was based on the previous DRF regional project, the Pacific Resilience Program (PREP) for Samoa, Tonga, Vanuatu and Marshall Islands, which was launched in 2015. This project provided co- financing (subsidies) for premiums for the PICs initially until the end of October 2018 – subsequently extended until October 31, 2023 – and the lessons learned from the CCRIF and SECCRIF, a similar collective captive insurance owned regionally. Page 26 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) Quality of Supervision 72. While the project faced challenges, with multiple changes in the TTL-ship and project staff causing a gap in the implementation support, the team’s proactive approach ensured project supervision went ahead despite these challenges. The Project was supported mostly by the project consultants who were largely based outside PICs, particularly during the early years of the Project’s implementation. The remote location of the PICs and travel challenges during the Covid-19 pandemic represented an additional disadvantage for regular in-person supervision. Nevertheless, the team managed to conduct regular supervision throughout the Project’s lifetime, with an ISR being produced roughly every six months resulting in a total of 11 ISRs. 73. There were ISMs and supervision reports carried out for this project approximately every six months during the life of the project (2017-2022). The last mission recorded the progress towards achievement of PDO and overall implementation progress as Moderately Satisfactory (MS), with a disbursement rate of 94 percent and remaining balance of $1.44 million. Justification of Overall Rating of Bank Performance 74. Overall Bank performance is rated as Moderately Satisfactory. The World Bank task team under PCRAFI TA provided continuous TA to PCRIC to support its operationalization, product development, monitoring and evaluation activities, and efforts towards long-term sustainability. The Project team produced regular ISRs, even when travel to the region was not feasible due to the Covid-19 pandemic. While PCRIC faced challenges in becoming fully operational during the first three years of the Project implementation – which explains the difficulties it experienced in implementing several of the project’s activities, including financial management and procurement aspects, it continued to make progress over time, with the Bank’s support. Indeed, the Project benefited from the team’s proactive approach to problem-solving and continued TA and capacity building throughout the Project’s life. Moreover, while the Project’s CEO was hired relatively soon after the Project’s effectiveness date, he resigned soon after. The void wa s filled by a functional Board of Directors who stepped in when the first CEO resigned. Last, but not least, the quality of supervision was eventually strengthened by the Bank’s dual TTL approach, with one TTL from the EAP Regional Team and a co - TTL from the Global FCI Team, which brought to the Project the complementary strengths of both teams and enabled to leverage the Bank’s global knowledge. D. RISK TO DEVELOPMENT OUTCOME 75. The risk to development outcome is Substantial. PCRIC continues to strengthen its regional position in the Pacific disaster risk insurance marketplace. With the Government of Fiji’s planned participation as a new client – to become a policyholder by October 2023 – and the development of the two new products on excessive rainfall and drought, PCRIC’s role in the region is enhanced and it could encourage more PICs to follow and purchase PCRIC products. With the second phase of the PCRAFI program, it is expected to give PCRIC opportunities to strengthen PICs’ capacity in DRF and increase technical understanding of PCRIC products and the trigger mechanisms for payouts. However, tight Page 27 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) fiscal space in many PICs may pose a risk to their ability to purchase PCRIC insurance policies. Moreover, another risk to the development outcome is represented by the extent to which donor’s appetite for premium subsidies will continue, particularly under the current arrangement of 90 percent subsidy – 10 percent government contribution. Last, but not least, PCRIC’s financial sustainability remains sensitive to the number of insurance products in its portfolio and uptake of these products by both existing client countries and potential first-time buyers. Therefore, a change in the number of clients signed up or delays in developing new products that are relevant for PICs in the future is likely to adversely impact the development outcome. V. LESSONS AND RECOMMENDATIONS 76. Five key lessons emerge from the Bank’s experience under this project. These lessons can broadly be divided into the following categories: i) limited preparedness and political ownership by the client; ii) suboptimal coordination and communication; iii) changing competitive landscape on disaster risk insurance; iv) the sustainability of the project; v) good practice lessons drawing on previous Bank experience and significant donor support. 77. Improving client countries’ capacity and fostering strong political ownership makes a huge difference. At the time of the project inception and even to date, the authorities in the Pacific countries have had limited understanding of approaches to DRF including disaster risk insurance, given the broader context of low absorption capacity. Complicating the matter further, there was no regional counterpart for the Bank to engage with. The limited technical capacity contributed to less-informed decisions on disaster risks being insured along with misperceptions about different products as close substitutes (PCRIC insurance vs CatDDO) by client countries. There was also confusion about the role of the company and its ownership. Some country authorities saw PCRIC as a World Bank foster child and questioned the incorporation of the company in the Cook Islands. This lack of strong political ownership caused delays in staffing and limited outreach, further aggravating client misperceptions. These challenges highlight that the Bank and other stakeholders need to make significant investments in capacity building in the areas of disaster risk management and financing, so that client country authorities know very well how different insurance products fit within the insurance mix for the disasters they are exposed to. These will also prevent the repeat of unmet payout expectations on disaster insurance while contributing to well-informed insurance purchase negotiations on both sides. The World Bank continues to be engaged in providing TA and capacity building on DRF in the region through other channels and initiatives, now that the Project has closed. Strong political ownership of the project is also needed for it to succeed, given the regional nature and coordination challenges. This puts significant premium on PCRIC management’s ability to build relations and leverage its diplomatic skills to negotiate with government counterparts in selling insurance policies. Moreover, given the cultural attitudes in the Pacific, it is also useful to have someone from the region as the face of PCRIC, which fosters greater trust and belonging among government clients. 78. Coordination and communication are important and could have been better managed. PCRIC’s business model essentially relies on selling insurance products with a considerable political element, given that the primary customers of catastrophe insurance are regional government authorities. This requires significant political capital and coordination. Nevertheless, the WB and PCRIC should have cooperated closer with regional bodies, such as the PIF and SPC, to raise public awareness and trust in its services, especially at the earlier stages of the project. These problems were also exacerbated by suboptimal coordination and communication between World Bank teams working on PCRIC and CatDDOs, as well as in their interactions with the authorities in the Pacific. This lack of clear Page 28 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) communication and coordination about PCRIC’s role and objectives, and how its products fit in the broader disaster risk finance strategy, along with their complementarity nature, is likely to have affected the appetite of some of the PICs for PCRIC’s products. Hence, clear communication and close coordination is needed both within the Bank, and between the Bank and its counterparts. As sovereign risk transfer involves work at the policy levels for the PICs, it is important to build political support through the policy dialogues with individual PICs and at the regional level through the SPC and FEMM. 79. The Project had a catalytic role for the disaster-risk insurance market in the region and the ability to adapt and adjust in a rapidly evolving DRF environment is essential for success. Given the lack of market-based disaster risk finance solutions prior to the onset of the Project, a key achievement of the Project has been its catalytic role in developing the disaster risk insurance market in the region, especially in crowding in private sector expertise and capital as well as other players such as ADB or UNDP offering various disaster risk finance solutions to PICs. Moreover, an important lesson learnt during the project is the capacity to adjust as the DRF landscape in the region evolves. This is required of all stakeholders, especially PCRIC to adapt and adjust its value proposition when new DRF products come into play and potentially create a cannibalization effect, whether directly or indirectly. In such an environment, PCRIC and SPC need to work closely with development partners such as the WB, ADB, UN agencies to position PCRIC’s offerings in their policy advisories to the PICs. It’s important to note that all these policy level dialogues should be informed by sound and robust technical underpinnings by PCRIC to ensure credibility of advice and solutions proposed to the countries. Both the Bank and PCRIC should clearly explain to clients the cost vs. benefit of each and every disaster risk insurance available (e.g., PCRIC product vs CatDDO), adjusted for time value of benefit disbursement, among others. Moreover, it is key to explain how integrating a risk layering approach in their disaster risk finance strategies can help PIC Governments better manage the inherent risks associated with natural disasters in the region. To avoid moral hazard, implicit disaster risk insurers such as bilateral donors should also actively encourage PICs to purchase insurance, before any assistance from donors can come in. The project contributes to improving countries’ public financial management systems for disbursing insurance payouts following disasters and integration of insurance premiums into regular budgeting. 80. PCRIC’s long-term sustainability hinges upon developing a range of products that fit the PICs needs, while managing client expectations and risk exposures well. PCRIC is currently selling products to three countries and has not yet reached break-even. Under their business plan, they envisage break-even in 2-3 years’ time (e.g., by December 2025). This will be contingent upon attracting new clients, and developing new products (e.g., excessive rainfall, drought risk) that a diverse set of countries face within the Pacific. In the meantime, the subsidized premiums will be a vital lifeline in the next 3-5 years. With the development of new products, new risk exposures will arise, which requires inch-perfect risk management designs and corresponding human resources. Long-term sustainability also requires a delicate balancing act between raising revenues, and increasing reserves, while hedging increased risks optimally. Other forces beyond PCRIC’s controls, such as substitute products, the technical capacity of clients, donors’ implicit insurance guarantees as well as support for premium subsidies, will also play a crucial role in the project’s long-term success. 81. This project benefitted from draws on significant experience of establishing similar risk pools in other regions and, in turn, offers lessons learnt for existing and future risk pools under consideration. These lessons include: i) Client countries' buy-in and understanding of risk is key to successful implementation of the project, therefore TA provided by the WB and/or other development partners to build countries' capacity is very important. Page 29 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) ii) The success of these regional initiatives hinges upon both regional and country level political leadership and sound technical underpinning where the political dimension must be well managed. iii) Building sustainable institutions and systems (and not only financial products) takes time and requires strong regional ownership to drive the agenda. This requires robust governance structure and framework for sound decision making as well as staffing with the right skill set and understanding of the region and countries to implement the project. Moreover, donor support may be needed beyond the typical life of a Bank project. iv) Communication and coordination - not only between the WB and government counterparts, but also within the WB are essential to the project's success. v) The Project also mainly used donor grant financing without tapping into the World Bank’s IDA lending; however, using Bank lending may have helped secure even more operational support from the Bank. Indeed, a combination of World Bank lending and donor grants could create more synergies and benefits for the countries and sustainability for the Project. vi) The Project mainly used donor grant financing without tapping into the World Bank’s IDA lending; however, using a combination of World Bank lending and donor grants could create more synergies and benefits for the countries and sustainability for the Project. Leveraging the World Bank’s operational experience in this area could be considered for future projects, as indeed, blended finance may be necessary until the risk pool achieves a certain level of sustainability. . Page 30 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS A. RESULTS INDICATORS A.1 PDO Indicators Objective/Outcome: Pacific Catastrophe Risk Insurance Company (PCRIC) operationalized Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Pacific Catastrophe Risk Yes/No No Yes Yes Yes Insurance Company (PCRIC) operationalized 22-Sep-2016 30-Jun-2021 31-Dec-2022 31-Dec-2022 Comments (achievements against targets): Objective/Outcome: PCRIC makes full insurnace payout withing 30 days of the occurence of a covered (insured) event Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion PCRIC makes full insurance Yes/No No Yes Yes Yes payout within a 30 days of the occurence of a covered 14-Feb-2017 30-Jun-2021 31-Dec-2022 31-Dec-2022 (insured) event Page 31 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) Comments (achievements against targets): Objective/Outcome: The claims paying capacity of the PCRIC is enough to sustain a 1-in-200 year insured loss Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion The claims paying capacity of Yes/No No Yes Yes Yes the PCRIC is enough to sustain a 1-in-200 year 14-Feb-2017 30-Jun-2021 31-Dec-2022 31-Dec-2022 insured loss Comments (achievements against targets): Objective/Outcome: PCRIC is financially sustainable Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion PCRIC total equity is Yes/No No No Yes No projected to increase through FY24 01-Apr-2021 30-Jun-2021 31-Dec-2022 31-Dec-2022 Comments (achievements against targets): Page 32 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) A.2 Intermediate Results Indicators Component: Establishment and Operations of PCRIC Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of additional Number 3.00 3.00 5.00 3.00 countries purchasing insurance per season 01-Apr-2021 30-Jun-2021 30-Dec-2022 30-Nov-2022 Comments (achievements against targets): Component: Capitalization of PCRIC Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion PCRIC Capitalization Amount(USD) 0.00 20,000,000.00 20,000,000.00 14-Feb-2017 30-Dec-2022 30-Nov-2022 Comments (achievements against targets): Component: Development of Disaster Risk Insurance Products Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Page 33 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) Number of Insurance Number 0.00 2.00 3.00 3.00 Products Developed 14-Feb-2017 30-Jun-2021 30-Nov-2022 Comments (achievements against targets): Component: Monitoring and Evaluation Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Monitoring and evaluation Yes/No No No Yes Yes conducted 14-Feb-2017 30-Jun-2021 30-Dec-2022 30-Nov-2022 Comments (achievements against targets): Page 34 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) B. KEY OUTPUTS BY COMPONENT Objective/Outcome 1: To improve access to post-disaster rapid response finance for Pacific Island Countries 1. Pacific Catastrophe Risk Insurance Company (PCRIC) operationalized [Baseline: No; Target (2022): Yes] 2. PCRIC makes full insurance payout within 30 days of the occurrence of a covered (insured) event [Baseline: No; Target (2022): Yes] Outcome Indicators 3. The claims-paying capacity of the PCRIC is enough to sustain a 1-in- 200-year insured loss [Baseline: No; Target (2022): Yes] 4. PCRIC total equity is projected to increase through FY24 [Baseline (2021): No; Target (2024): Yes] 1. Number of additional countries purchasing insurance per season [Baseline (2021): 3; Target (2022): 5] 2. PCRIC capitalization (Amount, USD) [Baseline: 0; Target (2022): Intermediate Results Indicators $20m] 3. Number of insurance products developed [Baseline: 2; Target: 3] 4. Monitoring and evaluation conducted [Baseline (2021): No; Target (2022): Yes] 1. PCRIC established and operationalized 2a. Shared capital of PCRIC to fulfill the condition and compliance of the captive insurance license 2b. Grant income for PCRIC is available for financing capitalization funds Key Outputs by Component 3. Number of institutional capacity building (training/workshop/forum (linked to the achievement of the Objective/Outcome 1) etc.) on hazard and exposure database and DRF 4a. Parametric insurance product to support the PCRIC is developed and available in the market 4b. Hazard and exposure database is updated 5. Report on the use of funds in the event of an insurance payout and the project itself are available Page 35 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A. TASK TEAM MEMBERS Name Role Preparation Michael J. Goldberg Task Team Leader(s) Cristiano Costa e Silva Nunes Procurement Specialist(s) Robert J. Gilfoyle Financial Management Specialist Loren Jayne Atkins Counsel Simone Lillian Esler Team Member Ross James Butler Social Specialist Richard Andrew Poulter Team Member Barry Patrick Maher Team Member Samantha Jane Cook Team Member Michael Bonte-Grapentin Team Member Sevara Atamuratova Team Member Duangrat Laohapakakul Counsel Denis Jean-Jacques Jordy Team Member Olivier Mahul Team Member Seble Berhanu Team Member Thelma Ayamel Team Member Tatyana V. Klimova Team Member Supervision/ICR Page 36 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) Dara Malia Lengkong Task Team Leader(s) Cristiano Costa e Silva Nunes Procurement Specialist(s) Kitty Claudius Cassandra Finau Financial Management Specialist Ciliaka Millicent Wanjiru Gitau Financial Management Specialist Evaron Doris Masih Financial Management Specialist Dean Georgakopoulos Procurement Team Olivia May Mcdonald Team Member Rebecca Dang Counsel Yiao Yu Team Member Nicholas Gerard Williams Procurement Team Catherine Ansell Team Member John Luke Plevin Team Member Rosemary Alexandra Davey Environmental Specialist Akosita Kenawai Drova Team Member Loren Jayne Atkins Counsel Ross James Butler Social Specialist Martin Luis Alton Team Member Saskai Mohammad Amin Team Member Duangrat Laohapakakul Counsel Wolfhart Pohl Environmental Specialist Olivier Mahul Team Member Pei Shen Wang Environmental Specialist Seble Berhanu Team Member Thelma Ayamel Team Member Radu Tatucu ICR TTL Hang Thu Vu ICR Co-TTL Clarita Kusharto ICR Team Member Botir Baltabaev ICR Team Member Page 37 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) B. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No. of staff weeks US$ (including travel and consultant costs) Preparation Total 0.00 0.00 Supervision/ICR FY19 0 0.00 FY20 21.475 222,788.61 FY21 16.025 120,319.12 FY22 25.438 137,392.95 FY23 18.438 114,053.89 Total 81.38 594,554.57 Page 38 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) ANNEX 3. PROJECT COST BY COMPONENT Amount at Approval Actual at Project Percentage of Approval Components (US$M) Closing (US$M) (US$M) Establishment and Operations of PCRIC and 0 3,540,000.00 0 PCRIF Capitalization of PCRIC 0 20,100,000.00 0 Institutional Capacity Building on Disaster Risk Finance and 0 0 0 Insurance Development of Disaster Risk Insurance Products and TA to 0 15,400,00.00 0 PICs on DRFI products Monitoring and Evaluation 0 250,000.00 0 Total 0.00 25,430,000.00 0.00 Page 39 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) ANNEX 4. EFFICIENCY ANALYSIS A standard economic and financial analysis on the Project’s impact on the catastrophe risk insurance sector was not carried out during preparation, as the sector was non-existent prior to this Project. Page 40 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS The team received comments from the following counterparts and stakeholders: Ms. Litara Taulealo – Head of Climate Resilience Investment Coordination Division, Ministry of Finance, Samoa I only have a few comments. Paragraph 7 and 58: for Samoa, additional IDA financing was secured for the PREP including an extension to the project which continued the premium financing under the PREP until 31 October 2023. I think Tonga also had a PREP restructure and continue to participate up until now. On the political commitment, I can recall that at the time, the Samoa Minister of Finance and the ones that came after, had strong ownership of the project and was a strong advocate for the program through the Forum Economic Ministers Meeting and the work towards setting up PCRIC and its incorporation in the Cook Islands. Maybe as ministers and officials change through the years, the ownership fades as well. Mr. Garth Henderson – Financial Secretary, Ministry of Finance and Economic Management, Cook Islands I have no major concerns with the Report other than to say that development partners continue to overestimate the absorptive capacities of small pacific Islands countries with relatively small government agencies particularly in the Ministries of Finance which tend to carry the introduction of new initiatives such as catastrophic risk insurance. The point made about competing insurance products that have evolved overtime in the region that impacted on PCRIC reflects development partners continuing to operate in ‘silos’, and uncoordinated. In the prevailing development landscape, the ability of ‘recipient’ countries to negotiate ‘best fit’ will take time as they build up institutional capacity and knowledge. ‘Stop start’ initiatives do not provide certainty. I felt PCRIC was a good initiative to start a process of realization that developing member countries would have to eventually take responsibility for investment in their own risk insurance. Ultimately moral hazard prevails irrespective of what happens and PICs are likely to say yes to any new initiative that appears to be free. Mr. Aholotu Palu – CEO, PCRIC Overall, the report brilliantly captured the operational challenges encountered by the company since day 1 and also underscored its potential to become a key DRF instrument in the region to support countries' DRF priorities, and more importantly to create the needed market to meet all sectors’ needs. Specifically, I think the report precisely reported in its assigned sections the historical progress in which the adopted indicators explained the status of their operational and development performance. However, I think it would have been more useful if the report also gives some specifics to the areas where it stated that there are needs for further improvement, particularly in the governance space. I have to say that I Page 41 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) am grateful to note that the WB project team appears to have some confidence in the way the company is operating and what lies ahead, albeit challenges remain. Lastly, I wanted to also say that we all know that without the WB support, PCRIC's relevancy will always be questioned by the Pacific leadership. Therefore, I urge the WB to continue to support the company in its effort to enhance the understanding of the region to fully grasp the practicality of risk transfer mechanisms. Most countries are yet to see the link of PCRIC services towards enhancing their fiscal disciplines because it incentivizes the countries to shift their mindset from reactive to more proactive. This can only work if the WB continues to coordinate its DRF agenda with PCRIC as that will send a signal to the countries that both institutions are geared towards building the resilience of their economies and crowd in the much-needed private financing to complement the public sector’s tight funding. There is no doubt, that looking ahead, PCRIC, albeit not the only solution to disasters but one of the solutions to offer a clear value proposition to the PICs to stay relevant noting the financial needs for post- disaster beyond rapid response financing. Again, thank you for the excellent report. Ms. Eileen Turare – Project Manager, The Pacific Community (SPC) On Component 3a. Institutional capacity building on hazard and exposure database SPC received US$3.1million to do this component and I assume 4b below is part of this 3a here? Current project ends in Dec 2023. Not sure if this allocation to SPC to do this work was part of the same MDTF or a different MDTF? I note below that 3a and 4b were dropped under the restructure. If part of a different MDTF then all good. On Pacific Risk Information System (PacRIS), which contains information on the hazard, exposure, and vulnerability of fifteen PICs.: After just over 15 years of PacRIS deployment, this database still remains the largest of its kind to date, and something the countries want expanded to include national level in situ data as opposed to modelled. It is important to note the data that informs these products and associated premiums is as important On the need for PCRIC to explain the insurance product details better, and to better manage client Expectations: It goes further than this. There is a need to create insurance products tailored for country context. While it may not be considered a large to medium scale event in the global context, at a national context it is and is frequently occurring - which still requires the country to scramble for available funds within its already tight national budget On how a lack of clear communication and coordination about PCRIC’s role and objectives, and how its products fit in the broader disaster risk finance strategy, along with their complementarity nature, is likely to have affected the appetite of some of the PICs for PCRIC’s products: Again, products need to be closely tailored to country context. Page 42 of 43 The World Bank PCRAFI : Furthering Disaster Risk Finance in the Pacific (P161533) ANNEX 6. SUPPORTING DOCUMENTS (IF ANY) Page 43 of 43