Samoa adaptation plan calls for regional cat bond, expansion of Pacific parametric coverage

A national adaptation plan produced for the government of south Pacific island nation Samoa calls for scaling up of parametric protection across the region, as well as for existing risk pools to cover more perils, while also suggesting a regional catastrophe bond should be planned to provide risk capacity in future.

Samoa already has a range of parametric insurance protections in place, including from the Pacific Catastrophe Risk Insurance Company (PCRIC), which is a regional parametric disaster insurance risk pool and policy issuer.

The national adaptation plan has been recently produced for Samoa’s government, to lay out potential pathways for increasing its resilience to climate induced hazards, as well as how best to integrate climate policy into policy, planning and budgets.

Most notable for our readers is the inclusion of a recommendation that the Pacific region scale up risk transfer capacity available, with a catastrophe bond seen as a future avenue for securing diversifying capital markets support.

Scaling up financing and risk transfer instruments, including the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) is seen as one key area for Samoa and the region.

This could involve an increase in parametric insurance limits being made available, while the plan also calls for expansion of the PCRAFI initiatives coverage to include additional perils.

Specifically, the adaptation plan for Samoa calls for drought and flood triggers to be added the parametric risk transfer products developed under PCRAFI 2.0, the next phase of the initiative.

Parametric triggers should also be integrated into Samoa’s National Disaster Management Plan, to disburse funding more quickly within 10 days, an expansion of the use of parametrics beyond pure insurance and risk transfer arrangements into other forms of financing.

On the potential for a regional Pacific catastrophe bond, Samoa’s new adaptation plan calls for “exploration of a regional catastrophe bond tranche by 2040.”

Presumably this could be either a multi-country catastrophe bond, issued by a development bank for example, or a cat bond to support the reinsurance needs of PCRIC or a risk pool established under PCRAFI 2.0.

Previously, an OECD report explored how the issuance of multi-country catastrophe bonds could enhance disaster cost management in Southeast Asia.

This topic remains on the agenda it seems, with Samoa and the region being urged to assess the benefits and potential for cat bonds to play a future role in their disaster risk financing needs.