NbS Triple Win Toolkit: Economics and Finance 99 Model D – Resilience Bond Description of model A resilience bond is a new insurance instrument designed to protect government from financial pay-out and the physical impacts arising from natural disasters. Such bonds create a link between insurance coverage and capital investments in resilience projects (green or otherwise) that reduce the expected losses from disasters. The resilience bond model is based on the conventional catastrophe bond. It comprises: an insurance product providing coverage to the project sponsor 1, with insurance pay-out 2 in the case of a qualifying event (e.g.natural disaster); and a debt instrument sold to investors 3 to provide the collateralfor insurance coverage (i.e. cover payment to project sponsorin case of a qualifying natural disaster). The issuer deposits the proceeds into a collateral account 4 and makes fixed coupon payments to investors 5. It returns the initial payment (principal) to investors when the bond comes to maturity 6, unless a qualifying natural disaster occurs, in which case it uses the principalto pay out the sponsor. Bond investors agree at the outset to discount the coupons they receive when specific risk-reducing projects 7 are completed during the bond term 8. The bond issuer uses modelling to validate whether a resilience project is expected to reduce losses arising from natural disasters. This sets the reduction in coupon payments to investors. The cost savings from this reduction are distributed back to the project sponsor in the form of reduced insurance premiums 9, which can be used to finance further risk reduction investments. Further reading: http://cpicfinance.com/wp-content/uploads/2020/12/Resilience-Bond_Blueprint-1.pdf http://cpicfinance.com/wp-content/uploads/2020/12/Resilience-Bond-for-risk-reduction-Blueprint_refocus-partners.pdf