The Inter-American Development Bank (IDB) and IDB Invest have unveiled a major expansion of disaster risk financial instruments designed to enhance the use of reinsurance and the capital markets for risk transfer across Latin America and the Caribbean.Central to this initiative is a newly launched Regional Disaster-Risk Transfer Program that facilitates sovereign access to reinsurance and capital markets, addressing a critical gap for small and vulnerable economies with limited market penetration.Led by the IDB, it will initially support Belize, Honduras, and Panama in transferring risks from hurricanes, floods, droughts, earthquakes, and wildfires.The initiative is expected to grow through regional risk-pooling arrangements, with Spain and France expressing interest in supporting the program.

The goal is to transfer disaster risk to both the global reinsurance and the capital markets under this new IDB facility, the Regional Disaster-Risk Transfer Program.It will be interesting to see what form that risk transfer takes and whether catastrophe bonds or other insurance-linked securities (ILS) could become a feature, as it scales up over time.Complementing this market-based risk transfer solution, the IDB is scaling up sovereign disaster risk coverage by $2 billion.

This includes a $1 billion increase in its Contingent Credit Facility for Natural Disasters, and another $1 billion through Climate Resilience Debt Clauses.Under the Contingent Credit Facility, the IDB is increasing the number of eligible countries and raising coverage by $1 billion to reach $5 billion in total protection in 2026.The facility provides quick-disbursing liquidity to help deliver humanitarian relief, restore basic services to the population, and enact other response measures in the wake of severe disasters or health crises.

As well as this, The IDB is also scaling up its Climate Resilience Debt Clauses by $1 billion, raising total coverage to $4.2 billion by 2026.These clauses enable eligible countries to temporarily pause debt repayments in the event of qualifying natural disasters, preserving fiscal space to fund emergency and recovery operations On the private sector front, IDB Invest is launching a first-of-its-kind MDB mechanism to protect private investments from a broad range of external shocks that affect business continuity.These debt clauses allow for principal deferrals and tenor extensions of up to two years, helping de-risk transactions and unlock greater private investment in various sectors, such as agribusiness, infrastructure, energy, and tourism.

“We are scaling up financial protection to help countries and companies manage disaster risks more effectively,” said IDB President Ilan Goldfajn.Adding: “With these new tools and coverage, we are strengthening resilience, accelerating recovery, and making sure that financing is available when it’s needed most.” These initiatives build on the IDB’s Ready and Resilient Americas program, launched in March 2025, which aims to improve regional collaboration, preparedness, and financial protection against natural disasters.the IDB signaled plans to support Latin American and Caribbean countries in issuing catastrophe bonds and risk-transfer swaps as part of broader efforts to strengthen financial resilience to natural disasters..

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