Rare but extreme natural disasters and catastrophes can cause sovereign ratings downgrades, with the biggest impacts seen from earthquake and tropical storm simulations, making sovereign risk transfer and catastrophe insurance key, according to Standard & Poor’s, reports Artemis.
According to the report, the subject of sovereign catastrophe insurance is raised as one way to mitigate the threat that these major catastrophic events pose to nations. “We believe that one way to mitigate the economic and ratings implications of natural disasters is catastrophe insurance,” S&P says.
The existence of a robust catastrophe insurance or risk transfer program can have a significant impact on the rating effect of a major catastrophe event, the rating agency explains, lessening the impact and helping the country to recover more readily.