CATalytic insurance: the case of natural disasters

Tito Cordella and Eduardo Levy Yeyati

No 5377, Policy Research Working Paper Series from The World Bank

Abstract: Why should countries buy expensive catastrophe insurance? Abstracting from risk aversion or hedging motives, this paper shows that catastrophe insurance may have a catalytic role on external finance. Such effect is particularly strong in those middle-income countries that face financial constraints when hit by a shock or in its anticipation. Insurance makes defaults less appealing, relaxes countries'borrowing constraint, increases their creditworthiness, and enhances their access to capital markets. Catastrophe lending facilities providing"cheap"reconstruction funds in the aftermath of a natural disaster weaken but do not eliminate the demand for insurance.

Keywords: Debt Markets; Bankruptcy and Resolution of Financial Distress; Labor Policies; Emerging Markets; Financial Intermediation (search for similar items in EconPapers)
Date: 2010-07-01
New Economics Papers: this item is included in nep-ias
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Related works:
Journal Article: CATalytic insurance: the case of natural disasters (2015)
Working Paper: CATalytic Insurance: The Case for Natural Disasters (2015)
Working Paper: CATalytic Insurance: The Case of Natural Disasters (2015)
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