<p>Growing economic losses due to floods and projected increases in flood risk attributed to climate change have heightened the need to evaluate alternative financing arrangements in the Western Cape. Risk transfer instruments such as catastrophe risk pooling can be useful in managing large losses that are inefficient to retain. Catastrophe risk pooling based on parametric insurance policies can provide timely support while offering lower premium charges for risk pooling participants. This is advantageous in the Western Cape as financial flows are often slow in reaching municipalities immediately after a flood, affecting their ability to support relief and reconstruction efforts. This paper focuses on a hypothetical municipal flood risk pool (MUFRP) in the Western Cape. The application of interest is one in which an MUFRP provides immediate payouts to assist disaster response and relief efforts in repairing and reconstructing essential public assets. The paper provides a first view on the design of financial aspects of an MUFRP that may be significant in determining the solvency and financial sustainability of a facility. It focuses on reinsurance and seed capital allocation arrangements, the effect of spatial correlation, and the influence of climate change, finding that seed capital allocations are the most crucial driver of solvency and financial sustainability for an MUFRP, with low seed capital allocations and proportional reinsurance significantly affecting the ruin probability. It also shows that the influence of spatial correlation and climate change on the solvency and ruin probability of an MUFRP is substantial, increasing the seed capital required.</p>