Swiss Re resilience bond to fight climate risk - FREE

Swiss Re resilience bond to fight climate risk - FREE

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Swiss Re, the Rockefeller Foundation, Risk Management Solutions (RMS) and Re:Focus Partners have announced a framework for their new ‘resilience bond.’

The bond is designed to manage financial risk from catastrophes at the same time as promoting investment in infrastructure boost resilience and mitigate physical risk for catastrophe prone cities.

The jointly-developed RE.bound programme is set out in report, ‘Leveraging Catastrophe Bonds as a Mechanism for Resilient Infrastructure Project Finance’, released today.

RMS said a resilience bond could provide financial protection through catastrophe re/insurance for a city or public utility.

Investing in protective infrastructure, like seawalls or flood barriers, means cities or utilities can capture insurance savings or cost reductions from one year to the next, said RMS.

Such projects can reduce economic losses from disasters during the term of the bond, suggested RMS.

An RMS statement drew an analogy from life and health insurance, wherein a policy can offer rebates for actions that lessen health risks to the policyholder, such as quitting smoking or exercising regularly.

“The new resilience bond highlighted in the RE.bound paper is an innovative way to bring private sector financing to help communities grow resilient and ultimately recover more quickly from severe shocks,” said Judith Rodin, president of The Rockefeller Foundation.

Shalini Vajjhala, founder and CEO of re:focus partners, said: “The RE.bound approach offers not only a tool for financing resilient infrastructure projects, but also for setting risk-based design standards for future capital investments.

Ben Brookes, vice president, capital markets at RMS said, “Resilience bonds have the potential to be powerful tools for encouraging the creation of a more resilient society.  It’s critical, however, for the bonds to be underpinned by accurate risk modelling.

“It’s only through meticulous risk quantification using advanced catastrophe modelling methodologies that the design criteria of the instrument, as well as decisions around future risk mitigation and resiliency investments, can be agreed with confidence.

Alex Kaplan, vice president, Swiss Re, said: "Resilience bonds could not only support a faster recovery, but would also help to improve preparedness in a very substantial way, and could help to fast-track resilience from idea to reality."

The authors of the RE.bound report hope it will inform industry and public sector officials at all levels of government about how resilience bonds can work, to demonstrate why they are important for communities facing increasingly frequent and severe storms and floods, and to inspire local risk managers to explore applications that help protect their own communities.

The next phase of RE.bound will bring together policy, project design, and finance experts to explore options for applying the modelling approach and resilience bond mechanism, a statement said, to help governments and international organisations lower dependence on disaster aid, improve protection for the most vulnerable countries and communities, and support global climate finance commitments.

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