  Extreme weather events can have severe impacts on national economies, leading
the recovery of low- to middle-income countries to become reliant on foreign
financial aid. Foreign aid, however, is slow and uncertain. Therefore, the
Sendai Framework and the Paris Agreement advocate for more resilient financial
instruments like sovereign catastrophe risk pools. Existing pools, however,
might not fully exploit financial resilience potentials because they were not
designed with the goal of maximizing risk diversification and they pool risk
only regionally. To address this, we introduce a method that forms pools
maximizing risk diversification and which selects countries with low bilateral
correlations or low shares in the pool risk. We apply the method to explore the
benefits of global pooling with respect to regional pooling. We find that
global pooling increases risk diversification, it lowers countries shares in
the pool risk and it increases the number of countries profiting from risk
pooling.
