We’ve written before about the Philippines government considering the use of catastrophe bonds to help them protect their infrastructure and finances from natural disasters and to enable them to recover more quickly when disaster strikes. The country has exposure to many of the peak perils which cat bonds are used to cover and the topic arises every so often in the press.
Now we hear that some senior members of the Philippines government have been meeting with organisations such as the World Bank and International Monetary Fund in Washington to discuss various methods to improve the country’s finances. One of the issues discussed was the provision of a disaster financing or risk transfer facility which would provide the country with much-needed funds in the event of serious natural disasters to help with rebuilding and recovery.
A source within the Philippines government department of finance said that talks were productive and two specific options are on the table. One of those is a development loan from the World Bank which could give the government much-needed liquidity in times of disaster. The other option discussed was catastrophe bonds. Cat bonds could also provide the liquidity needed to help the government rebuild infrastructure and finance recovery efforts although it may not be as quick to provide that funding as a direct loan and the upfront costs worry them slightly.
It’s interesting to see cat bonds being discussed across the developing and developed world at the moment. Whether they are appropriate for a country such as the Philippines remains to be seen and many issues need to be worked through such as cost and the need for a speedy payout. It can only be a matter of time before we see another cat bond type structure used to provide disaster risk financing for a developing nation in a similar manner to the MultiCat deal.