Overview:

Summary: 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.

Implementation: 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.

• 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.
• Intervention Type:
  Planning/Policy
• Sectors:
  Disaster Risk Management  

Impact:

• Target Beneficiaries:
  Business owners, Property owners, Renters, Residents
• Phase of Impact:
  Risk reduction and mitigation
• Metrics:
  Proceed amount and allocation

Case Studies:

• World Bank-Mexico CAT Bond (UC Berkeley, Pg 46)

Implementation:

• 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

Benefits:

• Cost-Benefit:
  Medium
• Public Good:
  Low
• GHG Reduction:
  N/A
• Co-benefits (Climate/Environmental):
  N/A
• Co-benefits (Social):
  Increase property values, Reduce poverty