Catastrophe (CAT) bond
Funding and Financing
Funds are paid to an insurer when a pre-determined index is triggered like an extreme weather event. Proceeds from the CAT bond are put in a collateral account and only released if the trigger event occurs. If a payment is triggered, typically interest and principal repayment obligation are deferred or forgiven.
Use CAT bonds to provide long-term financial protection against climate-related risk. One example is a Resilience Bond, which links catastrophe insurance to infrastructure investments using insurance savings as revenue to fund resilient infrastructure projects.
Considerations for Use
CAT bonds can include interest or repayment discounts to governments that invest in risk-mitigation infrastructure.
Climate:Cold, Hot/Dry, Hot/Humid, Temperate
Policy Levers:Funding and FinancingThe allocation of public or philanthropic funding or private financing to implement projects, including risk transfer mechanisms.
Trigger Points:Preparatory measures (actions to establish authority to act)Actions to establish/ensure the authority to act when appropriate trigger-points occur.
Sectors:Disaster Risk Management
Target Beneficiaries:Business owners, Property owners, Renters, Residents
Phase of Impact:Risk reduction and mitigation
Metrics:Proceed amount and allocation
Intervention Scale:Region, State/Province
Authority and Governance:National government, State/provincial government
Implementation Timeline:Short-term (1-2 Years)
Implementation Stakeholders:City government, Industry, National government, State/provincial government
Funding Sources:Private investment, Public investment
Capacity to Act:High
Co-benefits (Social/Economic):Increase property values, Reduce poverty