Swiss Re and partners to develop resilience bonds: a tool for country and city risk management

Private sector leaders and members of the RE.bound programme have collaborated to design a framework for a new insurance-based product to generate capital for risk reduction projects. Swiss Re, The Rockefeller Foundation, RMS and re:focus partners explain that the resilience bond is designed to help manage the financial risk from catastrophes, while simultaneously promoting investment in infrastructure that mitigates physical risk.

Private sector leaders and members of the RE.bound programme have collaborated to design a framework for a new insurance-based product to generate capital for risk reduction projects. Swiss Re, The Rockefeller Foundation, RMS and re:focus partners explain that the resilience bond is designed to help manage the financial risk from catastrophes, while simultaneously promoting investment in infrastructure that mitigates physical risk.

The new framework is set out in the RE.bound report, ‘Leveraging Catastrophe Bonds as a Mechanism for Resilient Infrastructure Project Finance’, released on 9 December 2015.

Resilience bonds could offer both insurance and resilience benefits for disaster-prone cities. First, a resilience bond could provide financial protection for a city or public utility, like a traditional catastrophe bond. In addition, as cities or utilities invest in protective infrastructure, like seawalls or flood barriers, they could capture savings from the reduction in vulnerability by paying a lower risk premium to investors. Insurers commonly offer incentives to reduce risk, such as when a life insurer lowers premiums for policyholders who quit smoking or exercise regularly. The resilience bond would work on the same principle.

Alex Kaplan, Senior Client Manager, Global Partnerships, said: "Improving society's resilience is core to Swiss Re's business. With growing urbanisation and increasing climate change impacts, the challenges our cities and communities face globally are evolving and the solutions we provide must evolve with them." He continued: "Resilience bonds could not only support a faster recovery, but would also help to improve national and city preparedness in a very substantial way, and fast-track resilience from idea to reality."


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