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Using capital markets to develop private catastrophe insurance (Inglês)

The global catastrophe insurance market exhibits inherent cyclical risks. Disaster-prone countries can improve their protection against catastrophic risk and premium volatility by using capital markets to boost the capacity of the private sector to absorb and spread the risks both domestically and internationally. This Note proposes two mechanisms for more efficient management of catastrophic risk: pooled insurance coverage supported by liquidity and credit enhancement facilities, and hazard-indexed bonds to securitize risk. Support from multilateral development institutions can play a catalytic role in the development of these mechanisms while still preserving actuarially fair premiums. Some small countries may require multilateral support (a credit enhancement) to gain access to capital markets. Or perhaps all that is needed is for the government and local industry to recognize that the new mechanisms can both increase cover and stabilize premiums. Such an assessment requires scarce financial modeling skills—something multilaterals can help organize and finance.




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