World Bank deal an important step for public sector cat bond sponsors

by Artemis on July 3, 2014

The recently completed World Bank issued catastrophe bond transaction, which saw the bank leverage its own structured bond issuance platform to sell a cat bond to investors is an important step for public sector catastrophe bond sponsors, said GC Securities.

The World Bank deal, saw it use its affiliate organisation the International Bank for Reconstruction and Development (IBRD) as a cat bond issuer to facilitate the provision of reinsurance protection to the Caribbean Catastrophe Risk Insurance Facility (CCRIF).

The first deal in what the World Bank is calling its Capital-at-Risk Notes Program, which we named World Bank – CCRIF 2014-1 for ease of inclusion in Artemis data, provides $30m of fully-collateralized multi-year aggregate reinsurance protection against Caribbean named storms and earthquakes on a parametric and modelled loss trigger basis for the 16 CCRIF member countries.

Reinsurance broker Guy Carpenter’s capital markets unit GC Securities provided placement agent services and acted as co-structuring agent for the CCRIF on the deal.

Cory Anger, Global Head of ILS Structuring at GC Securities, said; “The creation of the World Bank’s cat bond issuance program is an important innovation that will open new markets for public sector sponsors and significantly streamlines the issuance process in terms of time and cost.”

GC Securities has worked on a number of public sector sponsor deals over the years and recognises that these cat bond sponsors require efficiencies and cost effectiveness to be front of mind when structuring or bookrunning a deal.

Cory Anger continued; “Continuing GC Securities’ leadership role in pioneering the development of the public sector cat bond market for US and international entities, our close collaboration with the World Bank in structuring a program that is highly tailored for the CCRIF and also fully customizable for other entities will serve as a foundation for further market growth.”

The transaction is the first solely Caribbean risk catastrophe bond deal, that we’re aware of, and so breaks new ground for the cat bond investment market.

“We are honored to be entrusted by the Caribbean Catastrophe Risk Insurance Facility for their first cat bond and by the World Bank for the first issuance using their newly created Capital-at-Risk Notes Program. This transaction represents an important milestone for the CCRIF and the Caribbean market more broadly. By utilizing this cat bond to tap into the capital markets, CCRIF is able to develop new counterparty relationships and secure highly rated multi-year capacity at a fixed price that provides greater stability for its risk transfer program,” added Aidan Pope, CEO of Latin America & Caribbean Operations at Guy Carpenter.

The investor market is said to have been ready to support the World Bank CCRIF deal, with some suggesting that had the deal been larger it would have found ample capacity available to support it still. In recent days investors have asked Artemis whether more may be coming, now the World Bank has proved it can issue these cat bonds on its own.

It seems likely, but sponsors are still required even for the World Bank. The question lies in whether the World Bank could actually use cat bonds to protect itself and the organisations and its sister units development loans into developing countries. The answer is likely yes, but it may take time.

Chi Hum of GC Securities explained that investors are ready to support such deals; “Investors’ receptivity to this groundbreaking transaction is a strong indicator of the untapped potential in the capital markets for public sector sponsors. We are pleased to have placed the first cat bond for the CCRIF and the World Bank and to facilitate new relationships between the public sector and investors that will benefit the CCRIF and new sponsors in the future.”

For brokers like Guy Carpenter initiatives like the World Bank’s work in disaster risk transfer offer new opportunities to be innovative and to develop new markets, which in turn will benefit the core reinsurance and ILS sectors.

David Priebe, Vice Chairman of Guy Carpenter, added; “In the post-convergence market, capital markets capacity continues to offer an attractively priced and effective complement to the reinsurance market. GC Securities, Guy Carpenter, and the other operating companies of Marsh & McLennan Companies, are highly committed to the strategic development of public-private partnerships to increase the availability of insurance and reinsurance worldwide by innovating new solutions such as the CCRIF and World Bank cat bond.”

By getting this first World Bank direct issued cat bond to market it should open up the potential for others to follow suit. The number of markets which could likely benefit from a more streamlined way to access the capital markets for risk transfer must be large. It will be interesting to see whether anyone follows suit and whether the new direct issuance of cat bonds replaces programs like MultiCat for the World Bank.

Read more about this innovative World Bank catastrophe bond deal here:

World Bank sells hurricane & earthquake catastrophe bond for CCRIF.

More details on the World Bank – CCRIF catastrophe bond issuance.

World Bank hails first cat bond from new Capital-at-Risk Notes Program.

World Bank – CCRIF 2014-1.

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