The International Bank for Reconstruction and Development (IBRD), has priced a joint catastrophe bond and swap transaction that provides a total of $630 million of earthquake insurance coverage to the Government of Chile.
The deal by the lending arm of the World Bank consists of $350 million of protection from the IBRD – Chile 2023 parametric cat bond and $280 million from catastrophe swaps.
By simultaneously offering the risk to both bond investors and to insurance and reinsurance companies in swap form, the World Bank and Chile’s Government say they were able to access a larger amount of risk bearing capacity than either market could offer on its own.
The transaction provides Chile with financial protection to mitigate the potentially disruptive economic impacts of earthquakes and resulting tsunamis, providing coverage for three years with payouts triggered if an earthquake meets the pre-defined parametric criteria for location and severity.
The deal also marks the first cat bond listed in on the Hong Kong Exchange and is IBRD’s largest catastrophe risk transfer transaction for a single country, its nineteenth cat bond and the second for Chile.
The first for Chile was issued in March 2018 as part of a transaction that also included bonds issued by IBRD for the three other Pacific Alliance countries Colombia, Mexico, and Peru.
Full details of both Chilean cat bonds, as well as all other deals in the history of the ILS market, can be viewed in the Deal Directory of our ILS-focused sister publication, Artemis.
“This constitutes a new step made by Chile towards a better protected and resilient public finances, in the face of large-scale natural catastrophe events, such as an earthquake, and is part of a comprehensive strategy that reinforces our commitment to fiscal responsibility, which has been highlighted by different local and international agents,” said Mario Marcel, Minister of Finance for Chile.
Anshula Kant, Managing Director and World Bank Group Chief Financial Officer, also commented: “We are pleased to have partnered with the Government of Chile on this important transaction. It is another example of how the World Bank mobilizes private capital for development and supports disaster risk management in our member countries.”
Kant continued : “We are encouraged by the extremely strong demand for the transaction from both bond investors and insurance counterparts who have shown their support for a more resilient future for the people of Chile.”
Carlos Felipe Jaramillo, World Bank Vice President for Latin America and the Caribbean, further stated: “Chile is one of the most seismically active countries in the world, experiencing some of the largest earthquakes ever recorded.”
“Through the intermediation of the World Bank, this CAT bond allows Chile to transfer major earthquake risks to the capital markets while enabling the authorities to respond quickly to the needs of citizens when calamities strike.”
Aon Securities, GC Securities, a division of MMC Securities, and Swiss Re Capital Markets acted as joint structuring agent, joint manager and joint bookrunner for this deal, while Mercer Investments (HK) was the joint manager and AIR Worldwide provided risk modelling and analysis.
“Aon Securities is pleased to partner with the World Bank to help the Republic of Chile return to the market for another successful transaction,” said Paul Schultz, Chairman and CEO Aon Securities. “We are proud to be an integral part of Chile’s broader plan to manage the financial risks of natural disasters, and we look forward to assisting with the next phase of this journey.”
Cory Anger, Managing Director of GC Securities, added: “We are very pleased to have worked with the Government of Chile and the World Bank on this important transaction which closes the protection gap and further builds momentum in transfer of global public catastrophic risk to the capital and reinsurance markets.”