IBRD CAR 123-124

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IBRD CAR 123-124 – At a glance:

  • Issuer: World Bank IBRD CAR 123-124
  • Cedent / sponsor: Republic of the Philippines
  • Placement / structuring agent/s: GC Securities and Swiss Re Capital Markets are joint structuring agents, joint bookrunners and joint managers. Munich Re Capital Markets are a joint structuring agent, placement agent and joint manager.
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: Philippine earthquakes & tropical cyclones
  • Size: $225m
  • Trigger type: Modelled loss
  • Ratings: NR
  • Date of issue: Nov 2019

IBRD CAR 123-124 – Full details:

A catastrophe bond for the Philippines has finally come to market, as the World Bank is set to issue on behalf of the country, through the International Bank for Reconstruction and Development (IBRD), a $225 million cat bond to secure both earthquake and tropical cyclone insurance coverage on a modelled loss basis.

The issuance is taking place under the World Bank’s IBRD Capital-At-Risk Notes program, with two classes of notes set to be issued and sold to investors to collateralize underlying swap agreements that provide the risk transfer and insurance protection to the Republic of the Philippines.

Two classes of notes are set to be issued and sold to investors to collateralize underlying swap agreements that provide the risk transfer and reinsurance protection to the Republic of the Philippines, we understand, with one class of notes devoted to coverage for each of the two perils.

The World Bank’s IBRD is the issuer, while the Treasury of the Republic of the Philippines is understood to be the beneficiary of an underlying catastrophe swap agreement between it and the Bank that facilitates the protection.

The swap agreements are fully collateralised through the sale of the two tranches of notes, providing the capacity to back the disaster risk transfer protection for the Philippines government.

Both of the perils coverage will be on a modelled loss basis, using modelling from AIR Worldwide we understand, while the trigger is a per-occurrence structure.

The catastrophe bond will provide the Philippines government with a three year source of disaster risk transfer capacity that would pay out should an earthquake or tropical cyclone event breach the modelled loss triggers parameters during the term.

Depending on the calculated modelled loss amount following any earthquake or tropical cyclone event, the outstanding principal of either tranche may be reduced by 0%, 35%, 70%, or 100%. Hence the severity of a catastrophe will denote how large a payout comes due.

The first tranche features currently $75 million of IBRD CAR 123 Class A notes that will be exposed to Philippine earthquake risks.

We’re told this earthquake risk tranche will have an attachment probability of 5.3% and an expected loss of 3%, while the notes are to be offered to ILS investors with a risk margin (spread) of between 5% and 5.75%.

The second tranche features currently $150 million of IBRD CAR 124 Class B notes that will be exposed to Philippine tropical cyclone risks.

This tranche, we understand, has an attachment probability of 5.3% and an expected loss of 3%, with the notes offered to investors with a risk margin of between 5.2% and 6%.

Both tranches will cover the entirety of the Philippines and represent the first 144a catastrophe bonds to have exposure to the country.

Update 1:

After marketing, we understand that this first Philippines catastrophe bond looks destined to complete at the original $225 million size, despite having been marketed as up to $300 million to potential investors.

Update 2:

The pricing was fixed with both tranches of notes settling with a risk margin fixed within the upper-half of guidance ranges.

The first tranche of $75 million IBRD CAR 123 Class A notes, that will be exposed to Philippine earthquake risks, have an initial expected loss of 3% and were offered to ILS investors with a risk margin (spread) of between 5% and 5.75%. This tranche priced with the risk margin at 5.5%, so in the upper-half of guidance.

The second tranche of $150 million IBRD CAR 124 Class B notes, exposed to Philippine tropical cyclone risk, have an initial expected loss of 3% and were offered to investors with a risk margin of between 5.25% and 6%. This tranche priced with the risk margin fixed at 5.65%, which is only slightly above the mid-point.

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