Why is it in the news?
→ Kerala urged introduction of CAT bonds during pre-Budget consultations for Union Budget 2026–27.
→ Proposed as a climate-resilient financing tool.
Category: Economy
Important Points
- CAT bonds are insurance-linked securities transferring disaster risk to investors.
- Governments act as sponsors and pay premiums.
- Investor principal used for recovery if disaster occurs; otherwise investors earn high interest.
- Recognised in Kerala’s Risk-Informed Master Plan (2022).
- Aim to reduce pressure on public budgets and emergency borrowing.
- India currently bears the full fiscal burden of disaster relief.
- Used globally by countries like Mexico and Philippines.
- Provide predictable and rapid financing for disaster-prone states.