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Global Catastrophe Bond Market and the Prospects of Its Formation in the Russian Federation

Author

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  • Natalya A. Khutorova

    (Russian Presidential Academy of National Economy and Public Administration (RANEPA), Moscow 119571, Russian Federation)

Abstract

The article is devoted to the development of instruments for catastrophe risk financing. The state of the global market for disaster risk financing is analyzed in order to identify the main development trends and the possibilities of using conceptual approaches in the Russian practice of the financial market. It is proven that the development of the catastrophe bond market has prospects in conditions of permanent instability, since catastrophe bonds are unique and highly attractive due to the lack of correlation with macroeconomic events. It is suggested that the instruments of catastrophe risk financing can be considered in the context of the development of sustainable finance. The paper identifies the main problems slowing down the development of the Russian catastrophe bond market, and formulates proposals aimed at developing the market for insurance-linked securities (ILS) in the Russian Federation. Pilot CAT bonds emission prospectuses should be based on structured bonds, with elements of a subordinated bond. There is a need to introduce into the Russian legal field a term defining ILS as a category. It is proposed to register special purpose vehicles (SPVs) and catastrophe funds in Russian offshores. The Russian analogue of catastrophe funds should be a closed-end investment fund with high funding for qualified investors. It is proposed to update the formula for calculating the creation of and the procedure for using reserve funds, in particular with the use of catastrophe risk financing tools. A pilot issue of CAT bonds is proposed to be conducted on behalf of VEB.RF, as bonds sponsoring regions exposed to high natural risks. In the process of developing socially responsible investor practice and tools for socially responsible investments, it is suggested to establish a Russian “Green Index” and to create green ETFs in Russia. Due diligence (DD) approaches are recommended for decisions on issuing catastrophe bonds.

Suggested Citation

  • Natalya A. Khutorova, 2021. "Global Catastrophe Bond Market and the Prospects of Its Formation in the Russian Federation," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 127006, Russia, issue 1, pages 75-92, February.
  • Handle: RePEc:fru:finjrn:210105:p:75-92
    DOI: 10.31107/2075-1990-2021-1-75-92
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    References listed on IDEAS

    as
    1. Elena P. Fedorova, 2020. "Role of the State in the Resolution of Green Finance Development Issues," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 127006, Russia, issue 4, pages 37-51, August.
    2. Cox, Samuel H. & Fairchild, Joseph R. & Pedersen, Hal W., 2000. "Economic Aspects of Securitization of Risk," ASTIN Bulletin, Cambridge University Press, vol. 30(1), pages 157-193, May.
    3. Samuel Cox & Hal Pedersen, 2000. "Catastrophe Risk Bonds," North American Actuarial Journal, Taylor & Francis Journals, vol. 4(4), pages 56-82.
    4. Igor A. Yakovlev & Ludmila S. Kabir, 2018. "Green Investment Financing Mechanism as an Element of the National Strategy for Sustainable Development Financing," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 127006, Russia, issue 3, pages 9-20, June.
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    More about this item

    Keywords

    CAT bonds; ILS; financial markets; catastrophe risk financing; risks;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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