Key information
- SectorDisaster relief
- StrategyHumanitarian Insurance-Linked Securities
- TypeVolcanic risk catastrophe bond
- Beneficiary Danish Red Cross
Helping communities when hit by volcanoes
An innovative humanitarian catastrophe bond supporting early disaster response in high-risk regions.
Private Debt and Credit Alternatives | Global
2021
Year of investment
$3 million
Issuance size
South America*
Geography
About
In March 2021, Schroders Capital participated in the launch of the world’s first catastrophe bond dedicated to volcanic eruption risk, designed to support humanitarian relief efforts. The $3 million issuance was privately placed and structured to benefit the Danish Red Cross, enabling rapid funding in the event of a volcanic eruption affecting vulnerable communities.
The bond covers ten volcanoes across Latin America, Africa, and Southeast Asia - all selected due to the large populations living within 100 km of each site. These include Popocatépetl (Mexico), Nevado del Ruiz (Colombia), Cotopaxi, Tungurahua and Pichincha (Ecuador), Fuego (Guatemala), Mt. Cameroon (Cameroon), Villa Rica (Chile), and Merapi and Raung (Indonesia).
The catastrophe bond uses a parametric trigger, based on volcanic ash plume height and wind direction, to determine payout1. This aims to facilitate a fast and transparent funding response to likely humanitarian impacts.
Why we invested
This bond represented a unique opportunity to support innovation in disaster relief financing by combining capital markets mechanisms with humanitarian outcomes. It aligns with our broader objective of expanding the use of insurance-linked securities ('ILS') to areas where conventional insurance markets may be underdeveloped or unavailable.
The investment reflects our belief that capital markets can play a constructive role in addressing global challenges, when structured responsibly and with clear, transparent objectives. By providing a pre-arranged funding solution for the Danish Red Cross, this bond seeks to improve access to financial resources during times of acute need.
Value creation
Our involvement helped to bring this first-of-its-kind transaction to market, supporting the development of a new financial tool for humanitarian organisations. The structure was designed with a parametric mechanism to provide rapid access to funding when specific volcanic eruption conditions are met, offering the potential for quicker aid deployment than traditional post-event fundraising.
The bond was issued by Replexus, with structuring support from Howden Capital Markets and brokering from Colliers. Schroders Capital participated as an initial investor alongside other experienced ILS managers, helping to ensure strong demand and successful placement.
While the scale of the bond is modest, its potential as a blueprint for future humanitarian risk transfer instruments represents a significant step forward in disaster resilience financing.
Sustainability
This transaction is aligned with Schroders Capital’s approach to investing in strategies that may contribute to long-term societal and environmental resilience. By enabling pre-arranged funding for humanitarian response, the bond supports preparedness efforts for communities at risk from natural disasters.
The ten volcanoes covered by the bond are located in developing countries, where access to post-disaster funding can be limited or delayed. By linking capital to specific risk parameters, this structure may help provide more timely support to affected populations, when needed most.
*Note: Countries include Mexico, Colombia, Ecuador, Chile, Guatemala, Cameroon, Indonesia.
1Artemis.com, as of 2021.
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Important information
Marketing material for Professional Clients only. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. All investments involve risks including the risk of possible loss of principal. Any reference to regions/ countries/ sectors/ stocks/ securities is for illustrative purposes only and not a recommendation to buy or sell any financial instruments or adopt a specific investment strategy.