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Catastrophe Financing for Governments: Learning from the 2009-2012 MultiCat Program in Mexico

Author

Listed:
  • Erwann Michel-Kerjan

    (Wharton School, University of Pennsylvania)

  • Ivan Zelenko

    (The World Bank)

  • Victor Cardenas
  • Daniel Turgel

    (Arch Re Facultative)

Abstract

With rapidly increasing population and growing catastrophe exposure in their countries, many more government leaders (including Presidents, Prime Ministers and Rulers) are now faced with a strategic question: how best develop a national strategy to hedge against the massive economic burden of extreme events that could hit their country tomorrow? We propose a framework to help those leaders in governments around the world and their advisors think more clearly about these issues, focusing specifically on the role that risk transfer mechanisms alternative to traditional insurance can play. The paper provides a case study of the $290 million multi-peril, multi-tranche catastrophe bond recently sponsored by the Government of Mexico and arranged by the World Bank under the MultiCat Program. We discuss the step-bystep creation of this catastrophe bond, from starting discussions that took place in 2008 to the investor road show and the successful issuance of the bond in October 2009. This joint initiative could provide an example for other countries that wish to establish their own financial coverage solution against disasters, as part of a broader national risk management strategy. We illustrate this with the case of the government of Chile and earthquake risks. It also shows that considering countries, or even cities, for the issuance of such insurancelinked securities (ILS) could considerably expand this market for alternative catastrophe risk transfer instruments.

Suggested Citation

  • Erwann Michel-Kerjan & Ivan Zelenko & Victor Cardenas & Daniel Turgel, 2011. "Catastrophe Financing for Governments: Learning from the 2009-2012 MultiCat Program in Mexico," OECD Working Papers on Finance, Insurance and Private Pensions 9, OECD Publishing.
  • Handle: RePEc:oec:dafaad:9-en
    DOI: 10.1787/5kgcjf7wkvhb-en
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    Citations

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    Cited by:

    1. Nipawan Thirawat & Sirikamon Udompol & Pathomdanai Ponjan, 2017. "Disaster risk reduction and international catastrophe risk insurance facility," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 22(7), pages 1021-1039, October.
    2. Kunreuther, Howard & Michel-Kerjan, Erwann, 2012. "Impact of behavioral issues on green growth policies and weather-related disaster reduction in developing countries," Policy Research Working Paper Series 6241, The World Bank.
    3. Kousky, Carolyn, 2012. "Informing Climate Adaptation: A Review of the Economic Costs of Natural Disasters, Their Determinants, and Risk Reduction Options," RFF Working Paper Series dp-12-28, Resources for the Future.
    4. Jakob Eberl & Darko Jus, 2012. "Evaluating policies to attain the optimal exposure to nuclear risk," RSCAS Working Papers 2012/50, European University Institute.
    5. Selene Perazzini, 2020. "Public-Private Partnership in the Management of Natural Disasters: A Review," Papers 2006.05845, arXiv.org.
    6. Daniel C. L. Hardy, 2022. "Alternatives in the Design of Sovereign Green Bonds," wiiw Policy Notes 62, The Vienna Institute for International Economic Studies, wiiw.
    7. Howard Kunreuther & Geoffrey Heal, 2012. "Managing Catastrophic Risk," NBER Working Papers 18136, National Bureau of Economic Research, Inc.
    8. Raluca Maran, 2023. "Drivers of sovereign catastrophe bond issuance: an empirical analysis," SN Business & Economics, Springer, vol. 3(6), pages 1-20, June.
    9. Razmig Keucheyan, 2018. "Insuring Climate Change: New Risks and the Financialization of Nature," Development and Change, International Institute of Social Studies, vol. 49(2), pages 484-501, March.
    10. Eberl, Jakob & Jus, Darko, 2012. "The year of the cat: Taxing nuclear risk with the help of capital markets," Energy Policy, Elsevier, vol. 51(C), pages 364-373.

    More about this item

    Keywords

    ART; catastrophe economics; leadership in government; Mexico; MultiCat Program; risk financing; Sovereign Catastrophe Bonds;
    All these keywords.

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