The World Bank has issued two tranches of catastrophe-linked bonds (cat bonds) to provide the Republic of the Philippines with financial protection against earthquakes and cyclones.
The bonds, which were issued under a International Bank for Reconstruction and Development (IBRD) program, provide $225 million of total coverage for three years.
This figure consists of $75 million of coverage for losses from earthquakes $150 million against losses from tropical cyclones.
The Philippines is considered to be 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% 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,” he continued.
Mara K. Warwick, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand, also commented: “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.”
“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,” Warwick explained. “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.”
“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,” added Rosalia V. de Leon, National Treasurer of the Philippines.
“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.”
GC Securities, a division of MMC Securities LLC, and Swiss Re acted as joint structuring agents, joint bookrunners and joint managers for the transaction, while Munich Re was a joint structuring agent, placement agent and joint manager. AIR Worldwide is the risk modeler and calculation agent.
“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,” said David Priebe, Chairman, Guy Carpenter & Company, LLC.
