- Cat bonds are beneficial to society by providing capital for natural catastrophe insurance.
- An important trend is the use of cat bonds in developing economies, often on the initiative of the World Bank.
- Entropics invests according to its policy for responsible investment, which primarily entails that we only invest in cat bonds judged to provide benefits for society.
- Entropics is a signatory of the UN Principles for Responsible Investment, UN PRI.
Cat Bonds and Responsible Investment
Cat bonds transfer insurance risks to the capital market. As the capital market is magnitudes larger than the insurance market, the capacity to absorb shocks, such as costs for disaster relief and reconstruction after a natural catastrophe, is significantly larger. Access to insurance coverage is therefore improved in exposed areas. Though cat bonds today primarily cover risks in developed economies, a number of initiatives in recent years extend the instrument to developing economies. These include the World Bank MultiCat programme, covering risks in Mexico, and CCRIF, offering insurance protection to Caribbean countries. Within the near future, cat bonds covering climate risks in Africa will be issued within the African Union initiative XCF. Improved insurance protection is interesting from a development perspective, as the lack of coverage can add risk to already risky investments. Improved insurance coverage supports an improved investment climate, facilitating economic development. Cat bonds are thus an asset class providing important prerequisites for economic development, while at the same time facilitating catastrophe risk management.