Bonds insure PH for up to $225M in losses from natural disasters

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    Vulnerable. Insurance Damage sustained by a community in Tulunan town in Cotabato, the epicenter of a 6.6-magnitude earthquake that struck Oct. 30 2019. (Reuters photo)
    Vulnerable. Insurance Damage sustained by a community in Tulunan town in Cotabato, the epicenter of a 6.6-magnitude earthquake that struck Oct. 30 2019. (Reuters photo)

    The World Bank’s International Bank for Reconstruction and Development (IBRD) arm has issued two tranches of catastrophe-linked bonds (CAT bonds) that will allow the Philippine government to cover 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,” the World Bank said in a statement.

    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. 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,” said Jingdong Hua, World Bank treasurer.

    “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,” added Mara K. Warwick, World Bank country director for Brunei, Malaysia, Philippines and Thailand.

    Warwick said the 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,” she said.

    Rosalia de Leon, national treasurer, said 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,” she added.

    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.