Sponsored by the Danish Red Cross, the newly launched CAT bond is the first bond in the world to cover volcano catastrophe risks. It aims to provide immediate financial assistance for disaster relief, mainly in developing countries. According to the initiators, about 500 million people worldwide live in proximity to 1,500 active volcanoes.

Launched as a pilot project, the CAT bond is the result of a global partnership involving non-profit humanitarian oganizations, reinsurers, modellers, structurers as well as capital market players.

Dirk Schmelzer, portfolio manager and member of the sustainability committee of Plenum Investments Ltd. in Zurich, says: «This CAT bond is groundbreaking in that it is settled with blockchain technology and applies a new method of modelling. The volcano CAT bond is an impressive example of the use of catastrophe bonds in the humanitarian field. While the World Bank embarked on this path already a few years ago, it is new that this concept is now also implemented in the non-government sector.»

With regard to portfolio composition, the new CAT bond is a welcome diversifier for conservatively oriented CAT bond funds, since the risk is well modeled and the parametric-based payout mechanism ensures a high level of transparency. Also, with a multiplier higher than two, the risk-return ratio of this CAT bond is priced such that both sponsor and investor achieve a balanced cost-income ratio.

«It is to be hoped that this pilot project will inspire imitators. Being prepared for emergencies is not only a clear commitment to help, but also proves impressively that the capital market can live up to its social responsibility through CAT bonds», adds Nico Rischmann, who, together with Dirk Schmelzer, is active in the Competence Centre for Sustainability.

The CAT bond of the Red Cross is another milestone on the road to a targeted protection of the most vulnerable regions of the world. With its significant financial participation in this issuance, Plenum Investments Ltd. does its bit to increase awareness of how the asset class of CAT bonds can contribute to sustainability.

Plenum Investments Ltd.

Plenum Investment Ltd. is an independent investment manager for institutional and professional clients and specializes in insurance risks. Its core competence is the management of natural catastrophe and longevity risks as well as regulatory insurance capital. The investment focus is on transparent and sustainable investment solutions. Plenum Investments Ltd. is an established provider in the UCITS CAT bond fund segment and leading in the sustainability analysis of capital market-based transfers of insurance risks.

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Plenum Investments Ltd. I Nico Rischmann
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