Pacific Alliance & World Bank sign MultiCat cat bond agreement

The Pacific Alliance trade bloc in Latin America has now signed an agreement with the World Bank to issue a catastrophe bond transaction in 2018 to protect against natural catastrophe events across the member countries.

Earlier this year 2018 had been discussed as the potential year for issuance of a MultiCat deal, and now the Pacific Alliance and the World Bank have cemented risk transfer plans by signing an agreement.

A report from El Universal claims an agreement was signed by Mexico’s Under Secretary of the Treasury and Public Credit, Vanessa Rubio, and the Ministers of Finance of Colombia, Chile, and Peru with the World Bank to pursue a MultiCat catastrophe bond issuance.

Jorge Familiar, Vice President of the World Bank for Latin America and the Caribbean, said; “It’s the first catastrophe bond (cat) issued for more than one country; this involves several nations and may open a very interesting road to explore.”

By collaborating and pooling the risk from a broader region, the catastrophe bond could be larger and the costs of issuance can be shared between all parties. Furthermore, a wider risk pool might be more attractive to insurance-linked securities (ILS) investors, and the structure of the deal could also impact how attracted investors are to such a transaction.

According to reports, each member country is looking at its own coverage parameters so the bond can be tailored to individual needs, which also provides investors with the ability to diversify risks.

Mexico has already worked with the World Bank, including on the issuance of the $360 million IBRD / FONDEN 2017 deal, which covered Mexico earthquake and Mexico named storm risks, with the $150 million Class A tranche of notes being triggered by the recent Mexico earthquake.

In light of the country’s work with the World Bank, Familiar explained that Mexico is somewhat ahead of other regions in trade bloc regarding natural disaster response, adding that the Pacific Alliance MultiCat issuance would bolster and support its aims at improving the management of natural disasters.

Update: A World Bank representative clarified that any Pacific Alliance catastrophe bond is more likely to be issued using the World Bank Treasury’s IBRD issuance platform, rather than resurrecting the MultiCat program for this particular deal.