Catastrophe Bonds: Demonstrating Resilience in Tough Times

Published on 14 Dec, 2021

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The global pandemic had a catastrophic impact on human civilization and on the growing but little known area of capital markets - catastrophe (CAT) bonds. Countries around the world are taking measures to curb the financial losses due to COVID-19. The benefits of CAT bonds in pandemic have been proved, as noted with the World Bank’s pandemic bond, which paid out $100 million after being triggered by COVID-19. Moreover, the growing intensity of natural disasters in different parts of the world pushes the need to leverage financial markets for improved risk mitigation. The rising popularity of CAT bonds appears to be a potentially viable innovative solution to channel private market contingent capital to be used in delivering pandemic response funding. The ability of CAT bonds to perform independent of financial market behavior makes them a useful source of alternative beta.