1. Overview
Asian and Pacific countries’ exposure to natural hazards is increasing while their fiscal capabilities to respond to large-scale disasters remain limited. With limited coverage of disaster insurance 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.
As exposure to natural hazards increases, countries in Asia and the Pacific are in growing need of risk management strategies to lower their economic burdens in the wake of catastrophes. Large-scale natural hazards often leave countries faced with insufficient funds to provide emergency relief to victims and to finance recovery efforts. Countries therefore need to seek to broaden their financing options and adopt alternatives beyond traditional mechanisms. Catastrophe (CAT) bonds are one such alternative. The costs associated with the outcomes of disasters vary significantly depending on the type, size, severity and frequency of disasters faced by a given country. Floods are the major threat in most of the region’s countries, but certain countries, such as Fiji, Myanmar, the Philippines and Viet Nam, are more affected by tropical storms, while Nepal and Indonesia are more exposed to earthquakes (Figure 1.1), meaning there is no “one-size-fits-all” approach. In making decisions on disaster risk financing, countries in the region should carefully consider the characteristics and types of disasters to which it is exposed.
Protection gaps in natural catastrophe insurance are a major issue for both OECD and emerging economies. These gaps are defined as the difference between economic losses and insured losses from natural disasters (Holzheu and Turner, 2017[1]). The worldwide protection gap has now reached a staggering USD 368 billion, with approximately 76% of natural catastrophe exposure remaining uninsured (Evans, 2023[2]). In the United States, protection gaps for hurricanes, floods and wildfires are relatively large. The Federal Emergency Management Agency (FEMA) estimates that fewer than 50% of US homeowners have flood insurance. Insurance coverage for disasters is limited in Emerging Asia. From 2012 to 2018, just 0.3% of overall losses in Viet Nam, 0.5% in Malaysia and 0.8% in Thailand were insured, based on Munich RE’s NatCatSERVICE data.
Another way to look at this issue is to consider a country’s insurance penetration, which reflects the development of the national insurance sector. It relates the aggregate volume of insurance premiums in an economy to gross domestic product (GDP). Figure 1.2 compares the insurance penetration rates of selected Asian countries in 2021.
Source: (Swiss Re, 2022[3]), World insurance: Inflation risks front and centre.
The CAT bond market has grown steadily since it began developing in the 1990s, with the corporate world as the main issuer over the first decade. From a single transaction recorded in 1996, the cumulative issuance of CAT bonds had grown to more than 560 deals in 2022 (Figure 1.3). In terms of volume, CAT bond issuance surpassed USD 12 billion in 2021, the biggest cumulative annual amount over the 1996-2022 period. However, CAT bond markets remain underdeveloped in the countries of Dynamic Asia and the Pacific1 (Artemis, 2020[4]). CAT bonds have been primarily issued to cover certain named perils in Europe, Japan and the United States, while the coverage for developing countries represents a much smaller share (Figure 1.4). Among countries and regions with emerging economies, the Caribbean and Mexico are covered more frequently than others. To date, the Artemis Deal Directory lists only one CAT bond covering property risks among the member countries of the Association of Southeast Asian Nations (ASEAN). It is a CAT bond issued by the World Bank in November 2019 to provide financial coverage to the Philippines in the event of earthquakes and tropical cyclones (Artemis, n.d.[5]).
Note: Only 144A CAT bonds or similar are included. 144A CAT bonds are privately placed CAT bonds under Rule 144A of the US Securities Act. LHS = left hand scale. RHS = right hand scale.
Source: Artemis (n.d.), Catastrophe Bond & Insurance-linked Securities Deal Directory (database), www.artemis.bm/deal-directory/.
Note: Only 144A CAT bonds or similar issued in 1996-2022 are included. “Others” includes Chile, the People’s Republic of China, Cyprus, Colombia, El Salvador, Guatemala, Israel, New Zealand, Peru, the Philippines and Chinese Taipei. Some percentages involve multiple counting; this applies to a CAT bond transaction that covers multiple countries or regions.
Source: Artemis (n.d.), Catastrophe Bond & Insurance-linked Securities Deal Directory, www.artemis.bm/deal-directory/.
Catastrophe bonds are financial instruments that utilise a process called securitisation to wrap natural disaster risk into a tradable format. This process is depicted in Figure 1.5. A typical transaction requires the sponsor or cedent (the entity that would like to lay off the risk) to set up a special-purpose vehicle (SPV), which acts as a facilitator to transfer the catastrophe risk from the sponsor to the investors between the two parties. The SPV (also called a special-purpose entity or single-purpose company) is a firm with the solitary goal of enabling the transaction. The SPV grants reinsurance coverage or catastrophe swap protection to the sponsor and collects the required risk capital by issuing the CAT bond to investors. During the term of the reinsurance contract between the sponsor and the SPV, the investor’s capital is held in the form of highly liquid and low-risk collateral in a trust account.
Source: Authors’ elaboration.
CAT bonds offer a coupon stream consisting of the floating interest rate (term premium) from the collateral securities and a fixed spread (risk premium) that is determined at issuance. The fixed spread represents the Rate on Line (ROL) paid under the reinsurance contract or catastrophe swap. CAT bonds carry minimal interest rate and credit risk due to their floating rate and the high quality of the collateral. Yet investors may lose their principal, because it is paid out to the sponsor if a predefined trigger event occurs during the term of the bond. The payout function can be binary or proportional to an underlying trigger metric.
To determine whether a payout is due under the embedded reinsurance contract or catastrophe swap, CAT bonds use different trigger mechanisms. CAT bond trigger mechanisms vary and provide investors with various levels of transparency and basis risk (the difference between the actual losses experienced and the expected payout). Mechanisms can be broadly classified into indemnity and non-indemnity triggers. Non-indemnity triggers can be further divided into parametric (index) triggers, industry-loss triggers, modelled-loss triggers and hybrid triggers. While the most common CAT bonds are those that feature indemnity triggers, index-triggered CAT bonds, including parametric, industry-loss and modelled-loss, have been favoured by investors due to their simplicity and higher transparency, hence no moral hazard issue. While these types of CAT bonds may pose greater basis risk for sponsors, the payout can be disbursed faster than with indemnity-triggered CAT bonds.
The countries of Dynamic Asia and the Pacific have a range of options for the financing of natural disaster losses accruing to the assets of households, companies and the public sector. However, applying these instruments in an isolated fashion will usually not be sufficient. Figure 1.6 indicates how sovereign risk transfer can be stacked together with other public sector measures in a risk management strategy.
Source: (OECD, 2022[6]), Building Financial Resilience to Climate Impacts: A Framework for Governments to Manage the Risks of Losses and Damages.
Catastrophe bonds can, in most cases, provide a fast means of absorbing the impact of natural catastrophes in the short run since bond protection can be put in place immediately. Within a risk financing strategy, CAT bonds are one of the options for ensuring adequate funding for disaster responses, and they are ideal for transferring low-frequency, high-severity risk. Moreover, catastrophe bonds can be issued anytime and have a typical term of three years, therefore offering flexibility and price stability. CAT bonds are designed to immunise the sponsor against counterparty default risk through full collateralisation with high-quality securities. Furthermore, the use of parametric triggers potentially allows for a quick source of funding, while price signals from the CAT bond market and modern pricing models allow for informed decision making. Investors need to diversify their ILS portfolios; thus, they tend to accept a spread discount when risks are shared at a multi-country level.
Although catastrophe bonds present various advantages, the development of CAT bond markets in Dynamic Asia and the Pacific is hindered by constraints and challenges, as set out in the following list:
Basis risk. The use of parametric triggers may lead to basis risk scenarios where a country has been struck by a disaster, yet its sovereign CAT bond does not pay out. Basis risk has been shown to negatively affect the demand for coverage. It is hence crucial that emerging market sovereigns understand the consequences of basis risk and take measures to minimise it where possible.
Reliable measurement infrastructure. Parametric triggers also require reliable measurement infrastructure in the geographic territory covered. Emerging countries that lack measurement infrastructure may need significant public investment before parametric CAT bonds can be used for sovereign risk transfer.
Data quality and reliable data providers. Sovereign CAT bonds are not feasible without trustworthy data providers that are independent and adhere to the highest standards of data processing, storage and submission. In addition, missing track records will be a challenge. Track records are important for investors because they provide valuable information about the past performance of an asset and the trustworthiness of the sponsor.
Rapid and target-oriented distribution of the payout. Once a sovereign sponsor receives a CAT bond payout to fund its post-disaster needs, it requires sufficient personnel and processes to ensure an efficient and targeted distribution of the proceeds.
Standardisation and liquidity concerns. Standardisation of financial instruments is a desirable feature from an investor’s perspective as it improves market liquidity and helps investors to manage their portfolios in a more efficient manner. Illiquidity can be a major concern as it reduces the ability to trade out of an unwanted position. Illiquid securities are characterised by low trading volumes and wide bid-ask spreads.
Inconsistency in regulatory treatment. Regulatory issues are another key factor limiting CAT bond market development. CAT bonds are a newer financial product, and legal and regulatory frameworks remain underdeveloped in many developing countries. Information asymmetry and insufficient investor protection are also challenges that need to be addressed. Price transparency is essential for secondary market trading. Concerning the tax treatment of CAT bonds, many countries’ tax codes lack comprehensive guidance with regard to the clarity of the structure, the nature of the product and classification for tax purposes. This may hinder investors from engaging in transactions.
Based on the benefits of CAT bonds for sovereign risk transfer, as well as the challenges associated with their adoption in emerging markets, major policy recommendations can be drawn. These recommendations may serve as guidelines for government decision making regarding the development of new sovereign disaster risk management programmes or the enhancement of existing ones. Policy recommendations for fostering CAT bond markets include the following:
Formulate a grand design for disaster risk financing. Formulating a grand design from a long-term perspective is important for countries in Dynamic Asia and the Pacific, while recognising the importance of an integrated approach to disaster risk management and the contribution of risk assessment, risk awareness and risk prevention to the financial management of disaster risks (OECD, 2023[7]). However, the manner of building up the disaster risk financing framework will differ among countries. Broadly, there are two main pillars of function that policy makers need to consider in the grand design, namely risk pooling and risk transfer. Countries in the region need to strengthen both functions in parallel, though the way forward will be different depending on the level of each country’s development. While establishing a catastrophe risk insurance programme to broaden insurance coverage, governments need to carefully consider the potential trade-offs inherent in different approaches to programme design, and the differences in the characteristics of the underinsured peril. All of these factors affect the ability of private insurance and reinsurance markets to assume risk. They will also require different approaches to the design of any catastrophe risk insurance programme. If a country formulates a grand design of disaster risk financing strategy, it is important to recognise the level of development of its capital and insurance markets, potential differences in fiscal resources and repayment capacities, and other key factors that may influence financial strategies for disaster risk, such as data availability and technical expertise (OECD, 2022[6]).
Invest in measurement infrastructure. Creating meteorological, hydrological and seismological services and investing in measurement infrastructure are also important. Many emerging countries already have measurement networks in place. These networks should be improved by investing in denser geographical coverage and more reliable and resilient devices, as well as reliable maintenance plans to ensure their functionality in the long run. In addition to existing measurement stations, governments can consider the use of advanced monitoring technologies, such as remote sensing, satellite imagery and permanent drone surveillance. These technologies may deliver real-time data on natural disasters and enable technological leapfrogging compared to classical measurements for certain perils (e.g. floods and drought).
Improve quality of data. Accurate and timely data are critical for effective disaster risk transfer. Data providers must be independent and have reliable processes plus trained personnel, and they need to fulfil high standards of data security. Trustworthy data providers deliver accurate, reliable and up-to-date information that can be used with confidence for decision-making purposes. To this end, they need standard operating procedures and personnel who are highly trained in all matters of data management.
Develop catastrophe risk models. The successful usage of CAT bonds for sovereign risk transfer crucially depends on the availability of reliable catastrophe risk models. Many countries in Asia and the Pacific are exposed to natural perils. Before these risks can be transferred to capital markets, they must be modelled. Without proper risk quantification, pricing and risk transfer are not feasible.
Enhance capacity-building. The adoption of CAT bonds needs to be accompanied by a build-up of expertise and experience. Experience and expertise are also critical factors for adoption on the investor side. At the same time, understanding financial competence in the context of CAT bonds to be something larger than management of personal finances is essential for the capacity-building of policy makers, and increasing the capacity of policy makers to take advantage of CAT bonds requires a whole-of-government approach.
Broaden investor bases. Training is key to broadening investor bases, something that should be a central goal for policy makers seeking to develop CAT bond markets. In addition to the technical aspects of investing, training is also essential for overcoming other barriers such as low personal confidence, and lack of trust in experts.
Minimise basis risk. Minimising basis risk could be accomplished by considering a risk pool with insurance portfolio to enable indemnity triggers, while maximising the correlation to losses if using a parametric trigger. The choice of parameters should be aligned with exposure in the best way possible. This can be achieved by switching from pure parametric to parametric index triggers which allow cedents to apply a weighting to the readings from different measurement stations that best mirrors their actual exposure.
Prepare distribution schemes. To ensure a rapid and targeted distribution of the proceeds from sovereign CAT bonds in the event of a disaster, and to avoid slow political processes, contingency plans must be put in place ex ante, taking social vulnerabilities into account and prioritising cash over in-kind aid.
Develop the local-currency bond market. Local-currency government bond markets provide the necessary platform and institutional framework for the issuance of catastrophe bonds in the region.
The implementation of sovereign catastrophe bonds by developing countries is still limited, yet examples such as CAT bonds sponsored by the governments of Jamaica, Mexico and the Philippines show that there is market appetite for this sophisticated financial instrument when it is deployed by highly exposed and vulnerable countries.
The implementation of CAT bonds by the Philippines government has been made possible by the continuous improvement of the country’s disaster risk financing and insurance (DRFI) strategy, with support from international development partners. The Philippines is present in the CAT bond market indirectly, the bonds having been issued by the World Bank on its behalf. In 2019, the World Bank issued two tranches of CAT bonds to provide the Philippines with a total of USD 225 million in financial coverage against earthquakes and tropical cyclones for three years. The CAT bonds were issued under the Capital at Risk Notes programme of the International Bank for Reconstruction and Development (IBRD). This programme can be used to transfer risks related to natural disasters and other risks of developing countries to capital markets.
A strong legal and institutional framework for disaster risk financing is essential to facilitate the development of risk transfer mechanisms such as CAT bonds. The Philippines provides an example in this regard. The rollout of other disaster risk financing programmes in the Philippines – such as the Parametric Catastrophe Risk Insurance Program, which preceded the CAT bond issuance – provided the country with an enabling environment and valuable lessons for CAT bond adoption. One such lesson was the need to improve the availability and quality of disaster-related data for the development of more sophisticated catastrophe models. There is also a clear need for the country to clarify the post-disaster responsibilities of stakeholders in order to improve the transparency and timeliness of fund disbursement in the aftermath of a disaster event.
In Indonesia, natural disasters often cause significant fiscal pressure. With the launch of the country’s DRFI strategy in 2018, the government has sought to overcome the fiscal burden resulting from various natural catastrophe events. Although Indonesia is not yet present in the sovereign CAT bond market, there is a possibility for CAT bonds to be used as a risk transfer mechanism within the country’s disaster risk financing strategy. Following a series of deadly catastrophes in 2018, including the earthquake in West Nusa Tenggara, the earthquake, tsunami, and liquefaction in Central Sulawesi, and the volcanic tsunami in Sunda Strait, the government looked into bolstering its financial resilience against disasters through the use of sophisticated financial instruments. The government also considered CAT bonds among the viable options for funding disaster recovery efforts for future catastrophe events that cause damages that exceed the annual disaster-related budget (MoF, 2018[8]). However, challenges may need to be addressed for CAT bonds to be used effectively, including strengthening risk data and analytics; improving the legal framework for risk transfer mechanisms and the regulatory framework for disaster data management; and recalibrating existing models to produce more accurate prediction and reflect local practices.
In the People’s Republic of China (hereafter “China”), budgetary instruments are the main financing mechanism for disaster risk used by the government. These include the budget reserve funds that, under the Budget Law, should be allocated by government at all levels. The funds can be used in case of emergencies, disasters and other unforeseen events. Budgetary instruments that are intended solely for disaster relief include the central government’s disaster relief funds and the Central Fiscal Fund for Agricultural Production Disaster Relief and Reduction. Government-backed insurance schemes are available in China, and these have helped the government to reduce the financial burden in the aftermath of disaster events. However, contingency funds and the government-backed insurance schemes are constrained by low awareness, low demand and insufficient and uncertain coverage. The Chinese government and insurance regulator have been promoting the use of the Hong Kong, China ILS regulatory regime to transfer part of the country’s catastrophe risks. In 2015, the Chinese state-owned reinsurer, China Re, sponsored its first CAT bond, the first one to place Chinese catastrophe perils in capital markets, through a Bermuda-domiciled special purpose insurer (SPI), issued on behalf of the Chinese government. The second one sponsored by China Re was completed in 2021, using Hong Kong, China as a domicile.
In India, as in many other countries of Asia and the Pacific, underinsurance remains a challenge. Sovereign parametric insurance schemes covering public assets against the risk of natural disasters are non-existent, as are other sovereign risk transfer mechanisms. Because its current financing options are limited, India often relies heavily on ex post financing mechanisms, including natural disaster reserve funds, budget reallocation, external debt and donor assistance. The country could develop adequate risk transfer mechanisms to lessen the burden of meeting post-disaster needs. India has the potential to adopt CAT bonds as one of its financing mechanisms to protect against the most severe disasters, and the government has recently begun to encourage the development of CAT bond markets. However, for CAT bonds to be effective, a comprehensive DRFI strategy needs to be established.
Sovereign CAT bond markets are more developed beyond Dynamic Asia and the Pacific. The governments of Mexico and Jamaica have issued this type of financial instrument in order to strengthen their disaster risk management strategies. Mexico’s 2009-12 MultiCat programme was implemented in partnership with the World Bank, with the World Bank Treasury acting as an intermediary between the Mexican government and major investment banks to develop the product and arrange the deal. As the global co-ordinator throughout this process, the World Bank played a vital role in deciding which trigger mechanism to use, based on the needs of the Mexican government, and in proposing a strategy for placing the bonds (Michel-Kerjan et al., 2011[9]). The World Bank also provided capacity building related to sovereign debt markets to a dedicated team within the Mexican government, which allowed the government to stay in control of the process.
Jamaica has sought to increase its financial resilience through the deployment of various financing instruments for post-disaster activities, including a contingency fund, contingent credit and catastrophe insurance from the Caribbean Catastrophe Risk Insurance Facility (CCRIF). Jamaica was among the 16 countries in the CCRIF that benefited from a CAT bond issued in 2014 under the World Bank’s Capital at Risk Notes programme. As available budgetary resources were deemed insufficient to bridge the financing gaps resulting from tropical cyclone events, risks were transferred to capital markets, with technical assistance from the World Bank and bilateral financial support from donor countries, including Germany, the United Kingdom and the United States. In 2021, Jamaica became the first Small Island Developing State in the Caribbean region to sponsor a CAT bond independently. The instrument provides the country with financial protection of up to USD 185 million for three years against named tropical cyclone impacts, on a parametric trigger and per occurrence basis. Should an event breach the predefined trigger criterion, payout would be made within weeks of a storm event once the calculation report is available – a quick payout calculation made possible by an innovative reporting feature included in the transaction. The experiences of Mexico and Jamaica demonstrate the importance of engaging with international financial institutions during the pre-issuance and issuance phases of a CAT bond transaction.
In several OECD countries, such as Australia, Japan, New Zealand and the United States, CAT bond markets have been shaped by the active involvement of the private sector, particularly the (re)insurance industry. The first CAT bond covering Australian risks was issued in 2006 by SPV Australis. Swiss Re, a prominent player in the insurance industry, secured USD 100 million in coverage against the perils of earthquakes and tropical cyclones. Australia brought another CAT bond to the market the following year, while Insurance Australia Group (IAG), the largest general insurance company operating in Australia and New Zealand, diversified its reinsurance programmes in 2019 by sponsoring its first CAT bond, issued out of Singapore. In New Zealand, the Earthquake Commission, the state-owned residential property disaster insurance entity, issued its first CAT bond in 2023 in a strategic move to diversify funding sources beyond traditional annual reinsurance.
In Japan, the first CAT bond transaction dates back to the mid-late 1990s, when Tokyo Marine and Fire sought reinsurance for USD 100 million of earthquake risk over a 10-year period. The transaction paved the way for subsequent CAT bond sponsorships, highlighting the country’s strong insurance and reinsurance industry. More recently, Japanese sponsors have engaged in joint issuance of CAT bonds, which involves multiple entities coming together to issue the bonds collectively. Joint issuance allows sponsors to leverage each other’s expertise, resources and market reputation, potentially attracting a broader investor base and reducing transaction costs.
The CAT bond market in the United States has experienced notable growth since its establishment in the mid-late 1990s. This growth has been driven by several major events, including Hurricane Katrina in 2005, the 2008 financial crisis and a post-crisis period of low interest rates. The impact of Hurricane Katrina highlighted the importance of CAT bonds in risk diversification. The collapse of Lehman Brothers during the financial crisis caused a significant decline in CAT bond issuances, but alternative collateral solutions restored confidence and enticed investors back into the markets. The catastrophe funds of individual states, such as the California Earthquake Authority (CEA) and the Florida Hurricane Catastrophe Fund (FHCF), have played a vital role in maintaining functional insurance markets by transferring and diversifying their risk profiles through CAT bonds. The CEA entered the CAT bond market in 2001 and has maintained a continuous presence, with new issuances every year since 2014. At the same time, the participation of federal entities such as FEMA in CAT bond markets demonstrates the continued relevance and growth of this risk transfer mechanism. FEMA introduced its initial CAT bond in 2018, providing reinsurance protection to the National Flood Insurance Program against flood losses resulting from named storm events.
While many countries in Dynamic Asia and the Pacific are prone to natural disasters, they often have limited capacity to respond quickly to disaster events due to their limited fiscal space. At the regional level, several initiatives are in place to address the financial risks arising from natural disasters. For instance, catastrophe risk pools can help countries in the region to access insurance coverage at lower costs. Catastrophe risk sharing facilities transfer a share of the risks of participating countries to international reinsurance or capital markets. In addition to cost sharing in transactions, joint issuance of CAT bonds allows sponsors to access a broader investor base. CAT bonds, which have gained popularity among sovereign entities, may also become a viable solution for reinsuring risks.
Nonetheless, joint issuance may present challenges as it involves multiple sovereign entities with different risk appetites and interests. Differences in risk and economic profile may also hamper the establishment of a sovereign disaster risk pool at the regional level. Indeed, the countries of Asia and the Pacific have heterogeneous exposure to natural disaster risks, and they differ in economic size and monetary and fiscal room to manoeuvre. This highlights the need for effective collaboration among participating governments. Moreover, different jurisdictions may have varying regulatory frameworks and compliance requirements, adding complexity to the process. By addressing these challenges, the potential benefits of joint issuance can be fully realised, contributing to the development of CAT bond markets.
The use of CAT bonds by multiple countries has also been observed in regional catastrophe risk pooling facilities, such as the CCRIF in the Caribbean. This approach enables small economies to access capital markets collectively.
In Asia and the Pacific, the Pacific region consists of a number of Small Island Developing States. High exposure to natural disasters and climate hazards makes these countries among the most vulnerable in the world. The Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) was launched in 2007. Under the pilot insurance programme, six participating countries – the Marshall Islands, Samoa, the Solomon Islands, Tonga and Vanuatu, as well as the Cook Islands, which joined in the second policy year – were provided with an affordable parametric insurance product against tropical cyclones and earthquakes or tsunamis. The product provided participants with access to rapid liquidity in the wake of major meteorological and seismic events. The initiative benefited from financial support from the government of Japan, the Global Facility for Disaster Reduction and Recovery and the European Union. Technical support was provided by GNS Science (New Zealand), Geoscience Australia and AIR Worldwide.
The ASEAN+3’s Southeast Asia Disaster Risk Insurance Facility (SEADRIF) was established in 2018. The facility, an initiative of ASEAN+3 finance ministers and central bank governors, aims to help countries gain access to reliable sources of disaster risk financing through tailored financial products and to enhance their financial resilience through capacity-building services. The establishment of this facility benefited from the financial and political support of Japan and Singapore. SEADRIF’s first financial product includes a three-year insurance policy against the risk of floods that was developed in response to a request from Lao PDR. Flood events have caused more damage in the region than other types of natural disasters, making affordable financial protection against floods essential to overcome the financial burden faced by these countries.
Some countries might be reluctant to cross-subsidise the premiums of other members of a given risk sharing arrangement. As such, technical expertise and data that are more current are needed to ensure each country pays an appropriate share of the costs. Administrators of a risk sharing mechanism must also balance the needs and wants of member countries with those of participating countries.
References
[4] Artemis (2020), Q4 2020 Catastrophe Bond / ILS Market Report: Busy fourth-quarter completes record catastrophe bond year, https://www.artemis.bm/wp-content/uploads/2021/01/q4-2020-catastrophe-bond-ils-report.pdf?utm_source=ReportsPage&utm_medium=Link&utm_content=Report&utm_campaign=Q42020Report.
[5] Artemis (n.d.), Catastrophe Bond & Insurance-Linked Securities Deal Directory, https://www.artemis.bm/deal-directory/.
[2] Evans, S. (2023), Nat cat protection gap widens to $368bn. Cat / resilience bonds needed: Swiss Re, https://www.artemis.bm/news/nat-cat-protection-gap-widens-to-368bn-cat-resilience-bonds-needed-swiss-re/.
[1] Holzheu, T. and G. Turner (2017), “The Natural Catastrophe Protection Gap: Measurement, Root Causes and Ways of Addressing Underinsurance for Extreme Events”, The Geneva Papers on Risk and Insurance - Issues and Practice, Vol. 43/1, pp. 37-71, https://doi.org/10.1057/s41288-017-0075-y.
[9] Michel-Kerjan, E. et al. (2011), “Catastrophe Financing for Governments: Learning from the 2009-2012 MultiCat Program in Mexico”, OECD Working Papers on Finance, Insurance and Private Pensions, No. 9, OECD Publishing, Paris, https://doi.org/10.1787/5kgcjf7wkvhb-en.
[8] MoF (2018), Strategi Pembiayaan dan Asuransi Risiko Bencana, https://fiskal.kemenkeu.go.id/files/parb/file/PARB2018_Revisi.pdf.
[7] OECD (2023), Recommendation of the Council on Building Financial Resilience to Disaster Risks, OECD, Paris, https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0436.
[6] OECD (2022), Building Financial Resilience to Climate Impacts: A Framework for Governments to Manage the Risks of Losses and Damages, OECD Publishing, Paris, https://doi.org/10.1787/9e2e1412-en.
[3] Swiss Re (2022), World insurance: Inflation risks front and centre, https://www.swissre.com/institute/research/sigma-research/sigma-2022-04.html.
Note
← 1. Dynamic Asia refers to Emerging Asia – the ASEAN-10 countries plus China and India – along with other member countries of the South Asian Association for Regional Co-operation (SAARC), the countries of Central Asia, as well as Mongolia in East Asia.