Sovereign catastrophe risk pools allow countries that are more susceptible to extreme weather events to increase their financial resilience against these weather catastrophes. Global catastrophe risk pooling is a financial mechanism enabling different countries to put together their risks into one portfolio and buy insurance as a group. One of the benefits of risk pooling is that risks can be diversified allowing the insured countries to put less capital than if they insured the risks separately.
As part of his work in RECEIPT, researcher Alessio Ciullo, has published a paper in Nature Communications that looks at the optimal sovereign risk pool of the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI). According to Ciullo:
“CCRIF’s and PCRAFI’s risk do not fully exploit their regional diversification potentials. While an optimal regional extension of PCRAFI would close this gap, this is not the case for CCRIF. Optimal global extensions of CCRIF and PCRAFI lead to a diversification increase with respect to the original pools of 60 % and 65 %, respectively.“
Read the “behind the paper” on the publication to find out more details.
Published on : 06 April 2023