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This paper aims to assist policy makers interested in establishing or strengthening financial strategies to increase the financial response capacity of developing country governments in the aftermath of natural disasters, while protecting their long-term fiscal balance. Contingent credit is shown to increase the ability of governments to self-insure by relaxing their short-term liquidity constraints. In many situations, contingent credit is most effectively used to facilitate risk retention for middle layers, with reserves used for bottom layers and risk transfer (for example, reinsurance) for top layers. Discussions with governments on the optimal use of contingent credit instruments as part of a sovereign catastrophe risk financing strategy can be guided by the output of a dynamic financial analysis model specifically developed to allow for the provision of contingent credit, in addition to reserves and/or reinsurance. This model is illustrated with three country case studies: agricultural production risks in India; tropical cyclone risk in Fiji; and earthquake risk in Costa Rica.

Access to Finance --- Bankruptcy and Resolution of Financial Distress --- Contingent Credit --- Debt Markets --- Developing Countries --- Disaster Risk Financing --- Dynamic Financial Analysis --- Finance and Financial Sector Development --- Financial Intermediation --- Insurance --- Insurance & Risk Mitigation --- Natural Disasters --- Private Sector Development

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Designing and rating insurance products requires both science and judgment. In developing and emerging economies, actuarial procedures must be robust and implementable, as well as offering a sufficient degree of transparency and flexibility so as to allow expert judgment to be incorporated. This paper outlines an approach to designing and rating a portfolio of index insurance products that uses both temporal and spatial aspects of the data to increase the efficiency of statistical estimates. The approach has formed the basis for the design and ratemaking methodology implemented by the Agriculture Insurance Company of India for the modified National Agricultural Insurance Scheme, which was initiated by the Government of India in late 2010.

Agriculture --- Area yield crop insurance --- Bankruptcy and Resolution of Financial Distress --- Debt Markets --- Developing countries --- Emerging Markets --- Finance and Financial Sector Development --- Hazard Risk Management --- Insurance & Risk Mitigation --- Pricing --- Product design --- India

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Those at risk from natural disasters are typically under-protected, possibly because they expect benefactors such as governments and donors to come to their aid. Yet when relief comes, it is often insufficient, delayed or misallocated. Benefactors may wish to commit to provide an efficient amount of fast well-targeted relief, and leave the rest up to recipients, but such commitments are difficult. This article analyses how transferring risk to third-parties such as private insurers may help resolve these commitment problems. Using a simple model of disaster risk finance is used to identify three distinct commitment problems and then show how various properties of risk transfer schemes can help to resolve these problems. The paper illustrates how these commitment problems play out using examples from around the world, and demonstrates where risk transfer schemes seem to have helped in practice. Overall, the findings show that the benefits of such schemes depend on the relative severity of the different commitment problems.

Environment --- Finance and financial sector development --- Insurance law --- Law and development --- Macroeconomics and economic growth --- Urban development

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This paper proposes a framework for ex ante evaluation of sovereign disaster risk finance instruments available to governments for funding disaster losses. The framework can be used by governments to help choose between different financial instruments, or between different combinations of instruments, to achieve appropriate and financially efficient strategies to fund disaster losses, taking into account the risk of disasters, economic conditions, and political constraints. The paper discusses the framework in the context of a hypothetical country, with parameters selected to represent a disaster-prone small island state. The paper shows how a mix of instruments can be chosen to minimize the economic opportunity cost given the underlying disaster risk faced and prevailing economic and financial conditions.

Access to finance --- Debt markets --- Finance and financial sector development --- Financial intermediation --- Hazard risk management --- Urban development

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Ethiopia's ministry of finance and economic cooperation (MoFEC) has requested that the World Bank and the United Kingdom (UK) Department for International Development (DfID) provide technical assistance to MoFEC to develop a comprehensive disaster risk financing framework for Ethiopia, in support of Government of Ethiopia (GoE's) interest in continuing to strengthen its system for delivery of post-disaster aid. MoFEC has requested that the analysis identify sources of funding for past humanitarian response and include a forward-looking analysis using statistical simulation techniques, taking into account historical changes in population and vulnerability. This document represents an effort to quantify the historical needs and expenditures associated with drought risks, with a view to supporting the dialogue about ways to strengthen Ethiopia's existing risk financing framework by improving the cost-effectiveness of risk management instruments used, and timeliness of response. The report is structured as follows: section one provides an analysis of the historic needs and expenditures associated with droughts in Ethiopia. Section two provides a forward-looking statistical analysis of disaster risks, identifying the annual financial needs associated with disasters, as well as a probabilistic analysis of the costs associated with disasters of different frequency and severity. Section three presents a way to view the financial gap between the current sources of financing for drought risks and expected annual losses related to droughts. Section four concludes.

Agriculture --- Conflict and Development --- Disaster Management --- Drought Management --- Environment --- Food Assistance --- Food Security --- Hazard Risk Management --- Natural Disasters --- Risk Management --- Urban Development --- Water Resources