Taiwan Weighs Catastrophe Bonds, but Regulator Sees Limited Benefits and Favors Reinsurance for Now

Catastrophe bonds transfer losses from specified disasters, such as earthquakes and typhoons, to capital-market investors. If losses reach an agreed threshold, the principal can be used to pay claims. Given Taiwan’s frequent natural disasters, the Legislative Yuan has discussed the possibility of issuing such bonds with the Ministry of Finance and the Financial Supervisory Commission, seeking an additional way to diversify risk beyond reinsurance.

An FSC official recently said Taiwan’s disaster risk and the cost of issuing catastrophe bonds are both high, while investor willingness to assume the risk is limited. The bonds therefore offer fewer benefits than reinsurance at this stage, leaving reinsurance as the primary tool. The discussions have not produced a specific issuance date, amount or timetable, and the Ministry of Finance and the FSC are currently assessing only the feasibility of an offering.