Start financing facility: Quantitative analysis of risk pooling

This report has been prepared at the request of Start Network programmes, which are hosted by Save the Children Fund UK, the Grant Custodian for the Start Network. The purpose of this report is to provide technical advice around the funding of the Start Financing Facility (SFF). In particular, by providing a theoretical illustration of the financial implications of pooling a number of risks into a central risk pool. This paper investigates how the number, frequency and size of the risks will affect the demands on the central risk pool, and highlights options for the financial management of the pool.

This paper provides a quantitative analysis of how risk pooling could work but does not suggest a recommended approach. If the SFF did want to develop a risk pool then further work will be needed around: Designing triggers and payouts based on an analysis of countries’ specific needs including around the speed of response; Understanding donor’s appetite to fund the SFF by providing initial capital and annual contributions towards payouts; Understanding how (re)insurers and financial markets might price the SFF’s risks which might be based on novel trigger mechanisms and considering what risk transfer options might be best for the SFF; and understanding whether a possibility of having to reduce payouts would be acceptable.