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The Asian Development Bank (ADB) has approved plans to issue a pilot parametric catastrophe bond for Kyrgyz Republic and Tajikistan which could be as much as $100 million in size, protecting both countries against earthquake and flood risks.
This initiative accompanies ADB’s approval of a $56.4 million program aimed at strengthening both countries’ capacity to respond to natural disaster events.
Both countries are highly vulnerable to natural disasters, such as earthquakes and floods, but lack both the fiscal capacity and risk transfer mechanisms to effectively respond to these types of events.
As per ADB, the Risk-Layered Disaster Relief Finance Program will enhance both countries’ financial preparedness through a combination of two pre-arranged ADB financing instruments that target different layers of disaster risks.
The program combines Contingent Disaster Financing (CDF), which provides budgetary support in the event of medium-severity natural hazards and health emergencies, with a parametric catastrophe bond that will be issued by the ADB, which the organisation is calling a Disaster Relief Bond (DRB).
Funding for the program includes a $53.1 million grant through the Asian Development Fund (ADF), which supports the poorest and most vulnerable countries across Asia and the Pacific, as well as $3.3 million in cofinancing from the Asia-Pacific Climate Finance Fund.
Moreover, the ADB could presumably issue this cat bond through its own Treasury, much like what the World Bank Group has done with its catastrophe bonds in the past. This would be a first for the Asian Development Bank.
The pilot cat bond will be structured for internationally accepted insurance-linked securities (ILS) markets and based on the terms of an insurance agreement with the governments of the Kyrgyz Republic and Tajikistan.
“International investors who choose to invest in the DRB will receive coupon payments, which include the insurance premium (ADF grant) and ADB’s funding rate. The pilot DRB will be designed to focus on earthquake and flood risks, building on the modeling and analytical work conducted under ADB’s Technical Assistance for Developing a Disaster Risk Transfer Facility in the Central Asia Regional Economic Cooperation Region,” ADB explained.
ADB also noted that the proposed cat bond will provide coverage for earthquakes and floods over a 3-year period and will ensure that affected communities and micro, small, and medium-sized enterprises (MSMEs) receive inclusive financial support for their economic rehabilitation in the aftermath of disasters.
As we previously stated, it’s suggested that the first ADB cat bond could be around $100 million in size according to documents seen by Artemis and is expected to be parametric. A parametric trigger for each hazard will be utilised for the pilot cat bond, based on publicly available event data, which will determine the payout.
Both the trigger thresholds and corresponding payout amounts will be determined and agreed upon with the governments of the Kyrgyz Republic and Tajikistan prior to the bond issuance, ADB further confirmed.
“If a qualifying disaster meets the agreed parametric trigger, ADB will not repay the principal to the investors. Instead, the bond proceeds will be transferred directly from ADB to the government of the affected country to support immediate disaster response. The governments will then use these funds to assist the most vulnerable and affected groups, including women, children, the elderly, and MSMEs in the impacted regions through transparent fund flow arrangements,” ADB added.
Adding: “Existing social protection and payment channels in the Kyrgyz Republic and Tajikistan, such as social assistance programs, digital payment platforms, and other established financial services, will be leveraged to ensure efficient and timely disbursement of funds. These channels will help reach the intended beneficiaries swiftly and effectively, providing the necessary support for rapid recovery and economic stability. Monitoring and reporting mechanisms will be identified and adopted to track the use of funds. Economic damages following disaster events not triggering a payout under the DRB may be claimed under the CDF if they meet the legal triggers and conditions of the CDF.”
ADB Director General for Central and West Asia Leah Gutierrez, commented: “The program will help reduce fiscal strain for both countries in the aftermath of disasters, which include geophysical hazards, extreme weather events, and health emergencies. By integrating policy reforms and institutional strengthening with innovative risk-layered financial solutions, the program enables a shift from reactive disaster response to proactive disaster risk financing to build the financial resilience of both countries.”
At this stage the funding for the disaster risk financing program for the Kyrgyz Republic and Tajikistan has been approved, with some of this expected to be used to pay the risk premium component of the coupon for the proposed catastrophe bond. In addition, the ADB funding rate is expected to fund the risk-free collateral return, suggesting an ADB note may be utilised for that purpose.
Recall that a $100 million Nakama Re Pte. Ltd. (Series 2025-1) catastrophe bond sponsored by Zenkyoren, the Japanese National Mutual Insurance Federation of Agricultural Cooperatives, was the first ever cat bond issuance to utilise bonds issued by the Asian Development Bank (ADB) as collateral assets back in April 2025.
It will be a significant achievement for the Asian Development Bank (ADB) is and when this proposed catastrophe bond comes to market, being the first it will have facilitated for member countries.
It will also be notable if any catastrophe bond delivered by this program is issued by the ADB’s own Treasury. As an issuer of securities for a variety of use-cases for its members, it would be the first cat bond issued by the Bank.
Of course, as with any proposed catastrophe bond issuance there can be no guarantees an ADB cat bond for the Kyrgyz Republic and Tajikistan gets issued until details of a transaction emerge.
But should a cat bond be forthcoming from the ADB for this program it will likely be welcomed by investors and fund managers, given it will offer a unique diversification opportunity into a region that as yet has not featured in the history of the catastrophe bond market.
ADB approves plan to issue catastrophe bond for Kyrgyz Republic and Tajikistan was published by: www.Artemis.bm
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