As climate change generates more frequent disasters, governments and insurers are turning to cat bonds to control risk. These bonds serve to raise funding from markets for disaster relief and rebuilding.
Catastrophe bonds are risk-linked instruments that shift disaster risk from issuers (often governments or insurers) to investors. They are activated when a predetermined catastrophic event (such as an earthquake, storm, or flood) happens. For example, the World Bank issued cat bonds to cover the risks of tropical cyclones and earthquakes in Mexico and the Pacific Islands.
Pension funds, hedge funds, and family offices are important investors seeking diversification since climate risks are distinct from financial ones.
Practice Question Q. What is disaster resilience? How is it determined? Describe various elements of a resilience framework. Also mention the global targets of the Sendai Framework for Disaster Risk Reduction (2015-2030). |
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