Nephila, AP3 & reinsurers back upsized Philippines parametric renewal

Insurance-linked securities (ILS) investment fund manager Nephila Capital and Swedish state sector pension fund AP3 have both backed a near $390 million renewal for the Philippines regional parametric disaster insurance program.

The so-called Parametric Insurance Policy provides insurance protection for disasters across 25 provinces on the Philippine eastern seaboard, with a particular focus on protection national and local government assets against disaster and severe weather impacts, including Department of Education such as public elementary and high schools.

This appears to be a renewal of this arrangement that provided the reinsurance to back the parametric insurance scheme, although the last transaction was a $206 million catastrophe swap arrangement.

At this point in time we’re not sure whether this upsized renewal, at near $390 million (or 29.5 billion Philippine Peso) has also been transacted as a swap. We’d imagine this will become clear in the coming days.

We assume that the coverage is for losses caused by typhoons or earthquakes, as with the 2017 transaction.

The Philippines parametric insurance policy is designed to provide rapid liquidity in the face of disasters to the government, to enable rebuilding and recovery to commence. The parametric coverage will come into effect as of midnight Dec. 19th 2018.

Nephila Capital and reinsurance firms Munich Re, Swiss Re, AXA and Hannover Re, all participated in the previous arrangement to back this facility, but for 2019 are joined by additional reinsurers in Hiscox Re, Allianz, and SCOR, as well as Swedish state pension fund AP3 (Tredje AP-fonden).

AP3 has previously expressed its desire to invest more in insurance-linked opportunities that cover risks in developing or emerging economies, and was one of the biggest backers of the World Bank’s pandemic catastrophe bonds.

National Treasurer of the Philippines Government Rosalia de Leon explained on the deal that, “With the increased market participation, we were able to achieve a tighter multiple this year compared to last year’s transaction.”

de Leon also said that the completion of this arrangement, “Augurs well for our forthcoming indemnity and catastrophe bond issue.”

As regular readers of Artemis will know, the Philippines has been seeking to sponsor and issue a catastrophe bond since as long ago as 2010, but the initiative has been actively discussed in Government circles again in recent months.

The comments from de Leon suggest that progress on this is being made and a Philippines catastrophe bond remains on the cards.

The Department of Finance said it continues, “exploring a plan to sponsor a Catastrophe Bond (Cat Bond) to help bridge the financing gap the Government faces in the light of natural disasters.”

The World Bank has assisted with this renewal for the parametric program, which will now cover 25 eastern coastal provinces.

The premium for the coverage is said to have been P2 billion, which converts to roughly US $37.8 million.

The Philippines Government Service Insurance System (GSIS) provides the parametric catastrophe insurance coverage to the Department of Education along with the 25 covered provinces, with the World Bank, working through its International Bank for Reconstruction and Development, acting as the intermediary to transfer and cede those risks through to the global reinsurance market.

The World Bank’s Disaster Risk Financing and Insurance Program helped to prepare the transaction and parametric insurance facility, with financial support from the UK Department for International Development (DFID).

Also read:

– Nephila supports $206m World Bank Philippine cat swap transaction.

– World Bank arranges $206m catastrophe swap for the Philippines.

– Philippines parametric insurance pilot launched with World Bank support.