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Development of New Products for Climate Change Resilience in South Africa—The Catastrophe Resilience Bond Introduction

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  • Thomas Mutsvene

    (Department of Finance and Investment, Tshwane University of Technology, Private Bag X680, Pretoria 0001, South Africa)

  • Heinz Eckart Klingelhöfer

    (Department of Finance and Investment, Tshwane University of Technology, Private Bag X680, Pretoria 0001, South Africa)

Abstract

Climate change has brought several natural disasters to South Africa in the form of floods, heat waves, and droughts. Neighbouring countries are also experiencing tropical cyclones, almost on a yearly basis. The insurance sector is faced with an increased level of climate change risk with individuals, corporates, and even the government approaching it for financial cover. However, with an increased level of competition in the insurance sector, (re)insurers must engage in massive product research and development. Therefore, this paper looks at the possibility of the insurance industry developing new products in the form of catastrophe resilience bonds (CAT R Bonds). A qualitative approach is used following content analysis of (re)insurers’ product development policies, marketing documents, company reports, and risk management reports as well as the Conference of Parties 27 and 28 resolution papers. The findings reveal that (re)insurers’ underwriting capacity, reinsurance protection, and innovative and creative product development increase because of CAT R Bonds. CAT R Bonds enhance the interaction between the capital market and money market, thereby giving speculative investors another investment option. Increased investment into new product development such as CAT R Bonds must continue in South Africa in pursuit of climate change resilience goals.

Suggested Citation

  • Thomas Mutsvene & Heinz Eckart Klingelhöfer, 2024. "Development of New Products for Climate Change Resilience in South Africa—The Catastrophe Resilience Bond Introduction," JRFM, MDPI, vol. 17(5), pages 1-17, May.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:5:p:199-:d:1393077
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    References listed on IDEAS

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    1. Morana, Claudio & Sbrana, Giacomo, 2019. "Climate change implications for the catastrophe bonds market: An empirical analysis," Economic Modelling, Elsevier, vol. 81(C), pages 274-294.
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