Fostering Catastrophe Bond Markets in Asia and the Pacific
As climate change increases exposure to natural disasters, countries need new solutions to mitigate risks of natural hazards. For many in Asia and the Pacific, mobilising existing resources is not enough: they need to consider a grand design of disaster risk financing strategies. Catastrophe bonds (CAT bonds) can be an effective, market-based financing tool for the region. While the global CAT bond market has grown steadily since the 1990s, it remains weakly developed in Asia and the Pacific. Its successful development there requires robust purpose-built legal frameworks; developed general bond markets, especially in local currency; appropriate capacity building; and data-driven pricing models. This report explores each of these conditions along with policy suggestions for fostering them, and discusses the development of multi-country CAT bonds in Asia and the Pacific.
Overview
Asian and Pacific countries’ exposure to natural hazards is increasing while their fiscal capabilities to respond to large-scale disasters remain limited. With disaster insurance covering less than 1% of damages in many countries in the region, alternative financing mechanisms are needed. Catastrophe (CAT) bonds can provide one such alternative by securitising disaster risk, allowing for financing to be sourced directly from capital markets. This chapter provides an overview of the characteristics and benefits of CAT bonds, of the challenges to their implementation, and of policies to tackle those challenges. It concludes with examples of CAT bonds implemented across the globe.
- Click to access:
-
Click to download PDF - 575.60KBPDF