Sustainable finance
Sovereign Risk Transfer
Mechanisms by which governments transfer climate disaster risk to insurance and capital markets — regional risk pools, catastrophe bonds, parametric cover.
Definition
Sovereign risk transfer refers to instruments through which national governments shift the financial risk of natural disasters to insurance and capital markets: regional risk pools (African Risk Capacity, CCRIF in the Caribbean, PCRAFI in the Pacific, SEADRIF in Southeast Asia), sovereign catastrophe bonds, and parametric insurance that pays out automatically when defined triggers — wind speed, rainfall, earthquake magnitude — are met, providing liquidity within days rather than the months of post-disaster appeals.
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