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WTW designs ‘game changing’ climate-focused parametric solution

20th December 2021 - Author: Staff Writer

Broker Willis Towers Watson has announced its involvement in the design and placement of the world’s first parametric insurance transaction capable of making possible the Government of Belize’s ground-breaking debt restructuring for marine conservation.

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Munich Re participated in an underwriting capacity, with the insurance protection having played a crucial role in enabling Belize’s refinancing of its sovereign debt under The Nature Conservancy’s (TNC) Blue Bonds for Ocean Conservation programme.

TNC’s $364 million transaction with Belize was supported by Credit Suisse as sole structuring bank and arranger of the financing, and the U.S. International Development Finance Corporation as political risk insurance provider.

Willis Towers Watson created the world’s first sovereign debt “catastrophe wrapper” for this transaction.

The wrapper provides insurance protection to cover Belize’s loan repayments after hurricane events.

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Furthermore, the 20-year sovereign debt structure is said to strengthen sustainability and resilience to climate shocks known to have in the past triggered credit rating downgrades.

Dr Simon Young, a Senior Director at Willis Towers Watson’s Climate and Resilience Hub, is an expert in parametric insurance and led the design of the catastrophe wrapper. Dr Young said: “Volcanoes, earthquakes, and hurricanes repeatedly disrupt economic development in the Caribbean region, from households and communities to the sovereign level.

That disruption leads to higher debt and a longer, more painful path to recovery.
“The parametric wrapper is a game changer for the financial resilience of island and coastal nations and will help to unlock the financing of nature-based solutions in achieving global net zero and biodiversity targets.”

As part of Belize’s debt restructuring programme, the country repurchased its only international bond with $364m of capital arranged by The Nature Conservancy and insured by the International Development Finance Corporation.

This commitment is described as enabling Belize to restructure approximately $553 million of external commercial debt – an amount that represents 30% of the country’s GDP – and reduce the national debt by 12 percent.

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