Editorial
Countries in Asia and the Pacific are increasingly exposed to natural catastrophes that claim human lives and cause substantial economic losses: the frequency of disasters in the region has roughly doubled since 1950 and the annual costs have increased nearly sevenfold from the 1980s to the 2010s.
The region must therefore strengthen its risk management strategies in anticipation of rising recovery and reconstruction costs. Catastrophe (CAT) bonds, this report argues, are one important market-based solution which policy makers in Asia and the Pacific could use much more to mobilise new finance against such disaster risks.
Indeed, the global CAT bond market has grown steadily over the last three decades, providing valuable alternatives to private insurance. Benefits include the diversification of coverage, flexible multi-year coverage, full collateralisation, as well as transparency and fast settlement.
In order to help policy makers in Asia and the Pacific make the most of those, the report draws lessons from successful CAT bond issuances in the region and elsewhere, advising them on how to prepare appropriate market conditions, fit for their specific needs and circumstances. This includes formulating grand designs of disaster risk financing strategies, developing catastrophe risk models, investing in measurement infrastructure, establishing trustworthy data, and reinforcing capacity building. Additionally, where issuing bonds independently is infeasible, the report suggests that multi-country CAT bonds represent an alternative, practical way of reducing transaction costs and broadening the investor base.
Providing policy advice to our members – which include China, India, Indonesia, Thailand and Viet Nam –and partners, based on fresh, evidence-based analysis is a core mission of the OECD Development Centre. I hope this publication can feed a constructive dialogue in Asia and the Pacific, as the region strives to strengthen its resilience to climate change and its consequences.