Danish Red Cross launches volcano catastrophe bond

FILE PHOTO: Mount Merapi volcano spews hot lava as seen from Turi village in Sleman, Yogyakarta, Indonesia, March 5, 2021, in this photo taken by Antara Foto/Andreas Fitri Atmoko/via Reuters.

LONDON (Reuters) - The Danish Red Cross has launched a catastrophe bond for volcano-related disasters with the support of several financial firms, the groups said on Monday, adding it was the first of its kind.

The $3 million bond will enable the disaster relief agency to get aid quickly to those suffering following the eruption of 10 named volcanoes, in Cameroon, Chile, Colombia, Ecuador, Guatemala, Indonesia and Mexico.

Catastrophe bonds offer investors high yields, but do not pay out if a named catastrophe occurs. They typically cover areas prone to hurricanes and typhoons.

The Danish Red Cross worked with insurance group Howden, with risk modelling by Mitiga Solutions and blockchain technology from Replexus, the organisations said in a statement.

Initial investors include Plenum Investments, Schroder Investment Management and Solidum Partners.

Reporting by Carolyn Cohn; Editing by Kirsten Donovan