Pacific Alliance cat bond progress being made

by Artemis on March 13, 2017

The Pacific Alliance, a Latin American trade bloc, has again been discussing issuance of a joint catastrophe bond at a recent trade meeting in the region, and progress is being made with the help of the World Bank.

Map of Pacific Alliance countriesArtemis has reported before that the Pacific Alliance members, Peru, Chile, Colombia, and Mexico, were having discussions involving reinsurance firm Swiss Re about the potential for a joint catastrophe bond issue.

Now it transpires that the World Bank is also assisting the Pacific Alliance in its catastrophe bond ambitions and that progress is being made, with decisions on whether to issuer a cat bond, or not, set to be made at a future meeting.

Meeting last Friday, at the 12th Pacific Alliance Finance Ministers Meeting, held in Santiago, Chile, the Finance Ministers of the four member countries agreed to the need to continue to deepen ties on trade and financial cooperation between the Pacific Alliance bloc.

On the agenda at the meeting was disaster risk financing and insurance, where the need for catastrophe risk management and a “comprehensive natural disaster risk plan” was discussed, with financial protection measures key to the discussion, along with the potential for a catastrophe bond to play a key role.

The Pacific Alliance’s Catastrophic Risk Management Group said at the meeting that the catastrophe bond project has been achieving its milestones, with the assistance of the World Bank.

Chilean Finance Minister Rodrigo Valdes said that Pacific Alliance continues to seek to issue regional catastrophe bonds as a group, with a transaction that could provide disaster insurance cover for the four countries against peak risk exposures.

It is likely that this would be an earthquake cat bond, as the single peril that affects all the Pacific Alliance members. It would be simpler to structure a single peril cat bond across these diverse countries, although we’d imagine that discussions have revolved around the ability of a cat bond to offer coverage for a wider range of risks, with countries such as Peru so exposed to the climatic effects of El Nino, for example.

A Pacific Alliance catastrophe bond would be parametric in nature and reinsurance firm Swiss Re would be well-positioned to facilitate such a transaction, having experience of working with the World Bank on cat bonds in the past.

A decision is expected to be taken on whether to issue a joint catastrophe bond at a Pacific Alliance summit to be held in Cali, Colombia in the coming months.

Update: Interesting, it also came to light on the same day this article was published that Mexico is actively seeking bids to assist it with a cat bond issue. Whether this involves the Alliance is unclear..

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