Benefits of resilience bonds heralded in framework launch

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Catastrophe modelling firm RMS has launched the framework for a resilience bond designed to help manage financial risk from catastrophes while promoting investment in infrastructure that will minimise physical risk.

The bonds were developed in partnership with Swiss Re and The Rockefeller Foundation.

According to an RMS statement, the resilience bond could provide financial protection through catastrophe insurance for a city or public utility and, in addition, as cities or utilities invest in protective infrastructure such as seawalls or flood barriers, they could capture the insurance savings or reduction in cost from one year to the next for projects that reduce economic losses from disasters during the term of such bond.

Ben Brookes, RMS capital markets vice president, said: "It's critical for the bonds to be underpinned by accurate risk modelling. It's only through meticulous risk quantification using advanced catastrophe modelling methodologies that the design criteria of the instrument, as well as decisions around future risk mitigation and resiliency investments, can be agreed with confidence."

Alex Kaplan, Swiss Re vice president, added: "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. Resilience bonds could not only support a faster recovery, but would also help to improve preparedness in a very substantial way, and could help to fast-track resilience from idea to reality."

The resilience bond framework was set-out in a report released today (9 December), titled "Leveraging catastrophe bonds as a mechanism for resilient infrastructure project finance".

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