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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.

Access to capital --- Bankruptcy and Resolution of Financial Distress --- Capital markets --- Catastrophe bond --- Catastrophe bonds --- Coordination failures --- Creditworthiness --- Debt Markets --- Defaults --- Developing countries --- Economic development --- Emerging Markets --- External finance --- Fair price --- Finance and Financial Sector Development --- Financial Intermediation --- Insurance --- Insurance market --- International bank --- Issuance --- Labor Policies --- Levy --- Natural disaster --- Natural disasters --- Private Sector Development --- Risk aversion --- Social Protections and Labor --- Sovereign default