– A team of private sector leaders has collaborated to design and structure a framework for a new insurance-based product intended to generate capital for risk-reduction projects –
NEWARK, Calif. -
December 09, 2015 -
RMS, alongside re:focus partners, Swiss Re, and The Rockefeller Foundation, is pleased to announce the framework for a new financial product called a ‘resilience bond.’ These bonds are designed to help manage the financial risk from catastrophes, while simultaneously promoting investment in infrastructure that mitigates physical risk. The new framework is set out in the RE.bound report, ‘Leveraging Catastrophe Bonds as a Mechanism for Resilient Infrastructure Project Finance’, released today.
Resilience bonds could offer dual insurance and resilience benefits for disaster-risk prone cities. Firstly, a resilience bond could provide financial protection via catastrophe insurance for a city or public utility. In addition, as cities or utilities invest in protective infrastructure, like 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. An analogy is a life insurance policy offering rebates for actions that lessen health risks, such as quitting smoking or exercising regularly.
“At The Rockefeller Foundation we recognize that to solve today’s challenges, communities need innovative tools that can transform how they think and operate through a resilience lens,” said Judith Rodin, president of The Rockefeller Foundation. “We are confident that well-structured risk transfer mechanisms, such as the type of resilience bonds described in the RE.bound paper, can both help communities recover more quickly from severe shocks and make them more resilient.”
Shalini Vajjhala, founder and CEO of re:focus partners added, “The RE.bound approach offers not only a tool for financing resilient infrastructure projects, but also for setting risk-based design standards for future capital investments. It can help communities and cities around the world better protect themselves against the physical and financial risks of disaster.”
Ben Brookes, vice president, capital markets at RMS said, “Resilience bonds have the potential to be powerful tools for encouraging the creation of a more resilient society. It’s critical, however, for the bonds to be underpinned by accurate risk modeling. It’s only through meticulous risk quantification using advanced catastrophe modeling methodologies that the design criteria of the instrument, as well as decisions around future risk mitigation and resiliency investments, can be agreed with confidence. We are excited about the opportunity to lend our risk expertise in this area to the RE.bound program.”
"Improving society's resilience is core to Swiss Re's business. With growing urbanization and increasing climate change impacts, the challenges our cities and communities face globally are evolving and the solutions we provide must evolve with them," said Alex Kaplan, Swiss Re. "Resilience bonds support a faster recovery, but would also help to improve preparedness in a very substantial way, and fast-track resilience from idea to reality."
The purpose of the RE.bound report, released today, is to inform industry and public sector officials at all levels of government about how resilience bonds can work, to demonstrate why they are important for communities facing increasingly frequent and severe storms and floods, and to inspire local risk managers to explore applications that help protect their own communities.
The next phase of RE.bound will bring together policy, project design, and finance experts to explore options for applying the modeling approach and resilience bond mechanism to help governments and international organizations reduce dependence on disaster aid, improve protection for the most vulnerable countries and communities, and support global climate finance commitments.
About re:focus partners
re:focus partners is a design firm dedicated to developing integrated resilience solutions and innovative public-private partnerships for vulnerable communities around the world. Through large-scale programs like the RE.invest Initiative (www.reinvestinitiative.org), re:focus identifies systemic opportunities for innovation to create both public value and new private investment potential through projects with sound financial returns and economic, social, and environmental integrity for the communities they serve. For more information, please visit: www.refocuspartners.com or follow us @refocuspartners.
About The Rockefeller Foundation
For more than 100 years, The Rockefeller Foundation’s mission has been to promote the wellbeing of humanity throughout the world. Today, The Rockefeller Foundation pursues this mission through dual goals: advancing inclusive economies that expand opportunities for more broadly shared prosperity, and building resilience by helping people, communities and institutions prepare for, withstand, and emerge stronger from acute shocks and chronic stresses. To achieve these goals, The Rockefeller Foundation works at the intersection of four focus areas – advance health, revalue ecosystems, secure livelihoods, and transform cities – to address the root causes of emerging challenges and create systemic change. Together with partners and grantees, The Rockefeller Foundation strives to catalyze and scale transformative innovations, create unlikely partnerships that span sectors, and take risks others cannot – or will not. For more information, please visit www.rockefellerfoundation.org.
RMS models and software help financial institutions and public agencies evaluate and manage catastrophe risks throughout the world, promoting resilient societies and a sustainable global economy.