Philippines seeks Lloyd’s & World Bank help on infrastructure risk transfer

The government of the Philippines is planning a significant program of infrastructure improvements over the coming years, with as much as $170 billion expected to be spent, and is seeking assistance on risk transfer and insurance from Lloyd’s of London and the World Bank.

A report from national newspaper the Manila Standard states that, on visiting London last week, government ministers from the Philippines met with representatives of the Lloyd’s insurance and reinsurance market, as well as the World Bank, to discuss their infrastructure risk financing needs.

The Philippines is looking for an insurance structure that will enable it to better protect its assets, properties and investments in infrastructure projects against the impacts of natural disaster events.

The countries Finance Secretary Carlos Dominguez III met with representatives of Lloyd’s of London and the World Bank to discuss what type of support the insurance and reinsurance market could provide, as well as the range of structures that could be used to cover the Philippines’ investments in government assets and properties.

In particular, the Philippines is looking to protect its capital investments against disasters and incidents related to climate change.

Hence insurance and reinsurance structures that can protect the governments assets against typhoons, earthquakes, extreme rainfall are likely to be sought, with parametric triggers offering a viable way to protect assets and ensure rapid payouts for rebuilding and recovery.

In fact the Philippines could look to the catastrophe bond market, with the support of the World Bank, as parametric cat bonds could provide the capital protection the government is looking for.

Additionally, with other parametric insurance and reinsurance schemes already in place, the government could look to wrap up an extra layer of protection using a catastrophe bond to provide liquidity after disaster strike.

Dominguez explained during the visit that the Philippines government could spend as much as $170 billion to improve its physical infrastructure over the coming years and is keen to ensure it utilises risk transfer and disaster risk financing alongside this, to protect its investments.

The infrastructure projects are likely to include items such as underground railroads or metro’s, long-span bridges, light rail and overland railways, airports and seaport infrastructure.

It’s encouraging to hear that the Philippines is taking a progressive approach towards risk transfer, actively looking for ways to protect its own capital investments.

More countries should adopt this approach, rather than making investments in infrastructure and property which subsequently are exposed to the elements and natural disasters.

In future, given the capital to make sure aggressive infrastructure plans is often coming from international investors and organisations anyway, it may be prudent for catastrophe and weather coverage to be mandated for all such projects and perhaps the investors behind such initiatives should be seeking assurances that their investments are protected against disaster risks.

The capital markets and ILS funds would stand ready to provide the risk capital to protect the investments in such infrastructure projects, if the opportunity emerges.