The World Bank launches MultiCat Program to help governments issue cat bonds

by Artemis on October 19, 2009

The World Bank has published an announcement regarding its involvement in the MultiCat Mexico 2009 Ltd. catastrophe bond transaction. Their International Bank for Reconstruction and Development organisation was involved in helping the deal come to market and now it transpires that this could be just the first deal under a new facility called the MultiCat Program.

They’ve designed the MultiCat Program to give a platform which will allow other governments and public entities to access the capital markets to insure themselves against natural catastrophe risks. It’s the first time such a platform has been made available to the governments of developing countries around the world and as such is an exciting move which could herald a new era in public-private risk transfer.

Through the MultiCat Program participants will be able to obtain coverage for multiple perils, countries and regions utilising a common documentation, legal and operational framework for future cat bond issuances (all of which will carry the MultiCat name). They’ve designed the program to be flexible to allow for pooling of risks which can increase diversification, a key feature to help attract investors looking for uncorrelated assets. The World Bank say they are hoping it will help enlarge the traditional catastrophe bond investor community and help to attract new participants, that will also be helped by the World Banks name being on the documentation we assume.

Kenneth Lay, Vice President and Treasurer of the World Bank said “The MultiCat Program is an important step on the road to improving liquidity, reducing transactions costs and facilitating diversification across countries and risks for catastrophe bond investors. We believe this will translate into much better access to coverage on significantly better terms for the governments and other public agencies that use it to manage disaster risk, and thus lessen the financial and economic impact of natural catastrophe.”

It’s great to see the World Bank taking steps to help developing countries access the capital markets and at the same time providing a new and diversified form of investment which is bound to help increase interest in cat bonds. Having access to a platform providing standardised transaction terms will lower the barriers to market entry greatly for any countires seeing to enter the world of catastrophe risk transfer. It looks like MultiCat Mexico 2009 could be just the first in a string of MultiCat cat bond issuances.

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