08-04-2021 | 14:30 PM
Volcano Bonds
The Danish Red Cross launched the first of its kind catastrophe bond for volcano-related disasters in collaboration with several financial firms.
Key Points:
• This bond would enable the disaster relief agency to immediately provide financial assistance to those affected by the eruption of ten volcanoes in Chile, Ecuador, Cameroon, Colombia, Mexico, Guatemala, and Indonesia.
• Plenum Investments and Schroder Wealth Management became the original bondholders. The company deals in insurance-related shares.
• The bond's payoff is based on a mathematical model that forecasts where the funds will be required based on the height of the ash cloud following the volcanic eruption and the prevailing winds.
About Catastrophe Bonds:
• The catastrophe bonds insure against the damage from natural disasters such as earthquakes and storms. Some of the bonds also include the volcanic eruptions in baskets of the covered perils.
• These bonds offer a high yield to the investors who are going through the risk of losing some or all of their investment during the disaster.
