Philippines in catastrophe bond discussions with World Bank (again)

by Artemis on April 22, 2015

The government of the Philippines is in discussion with the World Bank about the use of catastrophe bonds, to help it transfer typhoon and earthquake risks to the capital markets, while securing a source of post-disaster financing, once again.

Catastrophe bonds for the Philippines have been a topic of discussion since 2010 or 2011, when its government first approached the World Bank about the potential to issue a MultiCat type cat bond structure to provide a source of rapid disaster response capital.

According to sources, the discussions reached a key stage last year and there was a possible Philippines cat bond transaction on the table in the last quarter of 2014 but which never quite got off the ground, for reasons unknown.

The suggestion late last year was that the Philippines was hoping to have some type of sovereign catastrophe risk transfer structure set up, in force and ready to announce around the anniversary of typhoon Haiyan, but for some reason this never occurred. Sources said at the time that the deal would roll over into 2015, but we have yet to see or hear of anything concrete.

Now, according to a number of newspaper reports, the Philippines government is back in discussion with the World Bank, with a catastrophe bond the main topic of discussion for disaster risk financing. With the World Bank having its MultiCat program and the Capital-at-Risk Notes Program it is well placed to help the Philippines to secure a source of disaster risk financing from capital markets investors.

The talks on catastrophe bonds for the Philippines are said to have resumed, as an effort to help the country reduce the impact of the approximately $5 billion of catastrophic economic losses it suffers from storm damage each year alone.

Bloomberg reported that Roberto Tan, National Treasurer of the Philippines government, said that the discussions with the World Bank about a foreign currency offering of catastrophe bond notes were ongoing.

Quite when a transaction will emerge remains to be seen, but you would imagine that the target would be to get a deal agreed and marketed in advance of the 2015 Philippine typhoon season, which is typically at its peak from September to end of November.

Given that any Philippine catastrophe bond is almost guaranteed to feature a parametric trigger, based on actual storm or catastrophe event parameters, any transaction should be transparent and acceptable to capital market and ILS investors.

That does beg the question why a cat bond for the Philippines hasn’t come to market yet, the answer to which is likely linked to politics and also possibly to data, as the process to get political agreement, collate the data, model a cat bond and to actually launch a sovereign risk transfer deal is unlikely to be a simple one for this market.

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