The World Bank said Monday it issued two tranches of catastrophe-linked bonds to provide 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.
It said the bonds”•issued under the International Bank for Reconstruction and Development’s capital at risk” notes program”•could 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.
“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,” National Treasurer Rosalia de Leon said in a statement.
“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,” she said.
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 damage or about 4.7 percent of the country’s gross domestic product.
World Bank vice president and treasurer Jingdong Hua said 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.
“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,” Hua said.
World Bank country director for Brunei, Malaysia, Philippines and Thailand Mara Warwick said the bank worked with the Philippine government over 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 said.
“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,” Warwick said.
GC Securities, a division of MMC Securities LLC and Swiss Re are the joint structuring agents, joint bookrunners and joint managers for the issuance, and Munich Re is a joint structuring agent, placement agent, and joint manager. AIR Worldwide is the risk modeler and calculation agent.
