IBRD CAR 130 – Full details:
This is the awaited first catastrophe bond to benefit the Government of Jamaica with a source of multi-year disaster risk financing.
The World Bank is set to issue the catastrophe bond on behalf of the Caribbean country, through the International Bank for Reconstruction and Development’s (IBRD) Global Debt Issuance Facility.
The issuance is taking place under the World Bank’s IBRD Capital-At-Risk Notes program, with a single class of notes set to be issued and sold to ILS investors, in order to collateralize an underlying swap agreement that provides the risk transfer and resulting disaster insurance protection to the Government of Jamaica.
As a result, the World Bank’s IBRD is the issuer of the catastrophe bonds, while the Government of Jamaica will be the beneficiary of an underlying catastrophe swap like structure agreement between it and the Bank that facilitates the protection.
The currently $175 million of catastrophe bonds will provide the Government of Jamaica with a multi-year source of disaster risk financing and insurance against tropical storm and hurricane impacts, on a parametric trigger and per-occurrence basis.
The series 130 Capital-At-Risk notes set to be issued and sold to investors will cover losses from named storms, so tropical storms and hurricanes, that have a sufficiently low minimum central pressure and breach a parametric box structure, we understand.
So the trigger for Jamaica’s first catastrophe bond is parametric, as we’d anticipated, while the protection will be on a per-occurrence basis.
We understand the named storm and hurricane protection will run across almost three hurricane seasons, with the notes maturity set for December 2023.
The parametric trigger is based on inputs related to the storm track location and the minimum central pressure, using data from the best track files out of the NHC’s automated tropical cyclone forecasting system.
These files are typically delivered a few weeks after a storm, but are validated figures from a trusted source so often used in parametric triggers.
The event parameters will be a calculated central pressure figure and also the storm track, while Jamaica and the surrounding Caribbean Sea have been divided up into a series of parametric boxes.
Different payout factors will then apply, depending on the box a storm tracks into and the minimum central pressure, calculated from the best track data.
We understand that a linear sliding scale of payout amounts will be used for this catastrophe bond, but with the minimum payout being 30% of the cat bond’s principal, running up to a full 100% payout.
The currently $175 million of IBRD CAR 130 Class A notes will have an initial expected loss of 1.52% we’re told and the notes are being offered to investors with coupon price guidance in a range from 3.75% to 4.5%.
We understand that the first catastrophe bond for Jamaica could upsize slightly to $185 million in size, while the price guidance for the risk margin (coupon equivalent) being offered to investors has tightened towards the upper-end of guidance, at 4.4% to 4.5%.
Jamaica’s first catastrophe bond has now been priced at the upper target of $185 million in size, with pricing at the 4.4% risk margin, so the low end of the raised guidance range.
The World Bank shared information on the mix of investors that allocated to this transaction, with dedicated ILS funds taking 66% of the notes. The rest of the investor breakdown can be seen below.