World Bank $225m cat bond transaction insures the Philippines against natural disaster
The World Bank (International Bank for Reconstruction and Development or IBRD) has issued two tranches of catastrophe-linked bonds (CAT bonds) in order to provide the Republic of the Philippines with financial protection of up to $75 million for losses from earthquakes and $150 million against losses from tropical cyclones for three years.
The bonds were issued under IBRD’s “capital at risk” notes program, which can be used to transfer risks related to natural disasters and other risks from developing countries to the capital markets. Payouts will be triggered when an earthquake or tropical cyclone meets the predefined criteria under the bond terms.
GC Securities, a division of MMC Securities LLC, and Swiss Re were joint structuring agents, joint bookrunners and joint managers and Munich Re was a joint structuring agent, placement agent and joint manager. AIR Worldwide is the risk modeler and calculation agent.
The Philippines is among the most disaster-prone countries in the world. In 2013, Typhoon Yolanda (also known as Typhoon Haiyan) resulted in the loss of 6,300 lives and caused an estimated $12.9 billion in damages, or about 4.7 percent of the country’s GDP.
“Many countries in Asia are highly vulnerable to natural disasters, which makes finding innovative, capital markets solutions a major priority to address the impact on their economies,” said Jingdong Hua, World Bank vice president and treasurer. “The World Bank CAT bonds for the Philippines are the first to be sponsored by the government of an Asian country and the result of a close and long-term partnership between the World Bank and the Philippines Government.”
“The World Bank has been working with the Philippines Government for the last eight years to help strengthen the country’s resilience against natural disasters,” said Mara Warwick, World Bank country director for Brunei, Malaysia, Philippines and Thailand. “Through the intermediation of the World Bank, these CAT bonds allow the Philippines to transfer natural disaster risks to the capital markets while enabling the authorities to respond quickly to the needs of citizens when calamities strike. This once again demonstrates the Philippines’ capability to develop innovative financial solutions to mitigate impacts of extreme climate and weather-related events as well as major earthquakes.”
Rosalia V. de Leon, national treasurer of the Philippines, added: “The World Bank CAT bond is a vital building block to our long-term disaster risk and insurance strategy, which we have been steadily establishing since the aftermath of Typhoon Ketsana and Parma in 2009.
“This instrument addresses the financing gap for immediate post-disaster needs for extremely high-risk events. It complements the government’s existing disaster risk financing mechanisms designed to ensure comprehensive financial protection for the Philippines.”
David Priebe, chairman, Guy Carpenter & Company, said: “GC Securities/Guy Carpenter congratulate the World Bank and Government of Philippines on this landmark and successful transaction as the first CAT bond with exposure to natural perils affecting the Republic of the Philippines as well as the first CAT bond listed on the Singapore Exchange. “We hope that this pioneering transaction provides a springboard for greater use of insurance linked securities to close the protection gap in Asia and promote sustainable economic development in one of the most dynamic regions of the world.”
Vincent Eck, managing director, public sector solutions, Swiss Re Asia, said: “Swiss Re is proud to play a small part in the bigger picture of making Asia – in particular the Philippines – a more resilient place to live, grow and thrive. By leveraging market risk appetite, the Government of Philippines is boosting its resilience to the natural risks it faces. We're privileged to have this opportunity to support this first-of-its-kind transaction in the Asia Pacific region.”
Thomas Blunck, member of the board of management, Munich Re, added: “We at Munich Re are proud of being part of the development and issuance of the catastrophe bond for the Philippines. We very much appreciate cooperating with the World Bank and support actively World Bank’s growing engagement in issuing catastrophe bonds and parametric risk transfer solutions insuring low- and middle-income countries against catastrophe risk.”
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