Disaster Risk Financing and Contingent Credit : A Dynamic Analysis
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This paper aims to assist policy makers
interested in establishing or strengthening financial
strategies to increase the financial response capacity of
developing country governments in the aftermath of natural
disasters, while protecting their long-term fiscal balance.
Contingent credit is shown to increase the ability of
governments to self-insure by relaxing their short-term
liquidity constraints. In many situations, contingent credit
is most effectively used to facilitate risk retention for
middle layers, with reserves used for bottom layers and risk
transfer (for example, reinsurance) for top layers.
Discussions with governments on the optimal use of
contingent credit instruments as part of a sovereign
catastrophe risk financing strategy can be guided by the
output of a dynamic financial analysis model specifically
developed to allow for the provision of contingent credit,
in addition to reserves and/or reinsurance. This model is
illustrated with three country case studies: agricultural
production risks in India; tropical cyclone risk in Fiji;
and earthquake risk in Costa Rica.
Palabras clave
AGRICULTURAL INSURANCE, AMOUNT OF RISK, ATTACHMENT POINT, BANK POLICY, BASIS RISK, BORROWING, CAPITAL COST, CAPITAL MARKET, CAPITAL MARKET DEVELOPMENT, CASH FLOW, CATASTROPHES, CATASTROPHIC RISKS, CC, CLAIM, CLAIM PAYMENTS, COMMITMENT LOAN, CONSUMPTION SMOOTHING, CONTINGENT DEBT, COST OF CAPITAL, CREDIT CONTRACT, CREDIT FACILITY, CREDIT INSTRUMENTS, DEBT, DEDUCTIBLE, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DIRECT CREDIT, DIRECT LOANS, DISASTERS, DISBURSEMENT, DISCOUNT RATE, DIVERSIFICATION, EARTHQUAKE INSURANCE, ECONOMICS, ELIGIBLE BORROWERS, EMERGING MARKET, EMERGING MARKET COUNTRIES, EXPENDITURE, FARMER, FINANCIAL ANALYSIS, FINANCIAL CAPACITY, FINANCIAL CAPITAL, FINANCIAL INSTITUTIONS, FINANCIAL INTERMEDIATION, FINANCIAL PRODUCT, FINANCIAL TOOL, FISCAL BALANCE, FULL REPAYMENT, FUTURE CASH FLOWS, FUTURE LOAN, GLOBAL CAPITAL, GLOBAL CAPITAL MARKET, GOVERNMENT EXPENDITURE, GOVERNMENT SUBSIDIES, GRACE PERIOD, HIGH INTEREST RATE, HOUSEHOLDS, INDEMNIFICATION, INSURANCE CLAIM, INSURANCE CLAIMS, INSURANCE PREMIUM, INTEREST COST, INTEREST RATE, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL FINANCIAL INSTITUTIONS, LENDER, LENDERS, LIABILITY, LINE OF CREDIT, LIQUID ASSETS, LIQUIDITY CONSTRAINT, LIQUIDITY CONSTRAINTS, LOAN, LOAN CAPITAL, LOAN FACILITY, LOAN REPAYMENT, LOAN REPAYMENTS, LOW INTEREST RATE, MARKET DEVELOPMENT, MATURITY, NATURAL DISASTER, NATURAL DISASTERS, OPERATING COSTS, OPPORTUNITY COST, OUTSTANDING DEBT, OUTSTANDING LOAN, PERPETUITY, POLICYHOLDERS, POLITICAL ECONOMY, PORTFOLIO, PUBLIC FINANCES, RATE OF RETURN, RATES, REINSURANCE, REINSURANCE PREMIUMS, REINSURERS, RELATIONSHIP BANKING, REPAYMENT, REPAYMENT SCHEDULE, RESERVE, RESERVE FUND, RESERVE FUNDS, RESERVES, RETURN, RETURNS, RISK CAPITAL, RISK MANAGEMENT, RISK NEUTRAL, RISK PROFILES, RISK TRANSFER, SAVINGS, SECURITIES, SHORT-TERM LIQUIDITY, SOVEREIGN RISK, STOP LOSS REINSURANCE, TAX, TAX REVENUES