Swiss Re Insurance-Linked Fund Management

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IBRD – Chile 2023

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IBRD – Chile 2023 – At a glance:

  • Issuer: International Bank for Reconstruction and Development
  • Cedent / sponsor: Republic of Chile
  • Placement / structuring agent/s: Aon Securities, GC Securities and Swiss Re Capital Markets are joint structuring agents and bookrunners. Aon Securities (Hong Kong) Limited and Mercer Investments (HK) Limited are joint managers.
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: Chile earthquake
  • Size: $350m
  • Trigger type: Parametric
  • Ratings:
  • Date of issue: Mar 2023

IBRD – Chile 2023 – Full details:

This new parametric earthquake catastrophe bond will provide disaster insurance to the Republic of Chile and is being issued through the World Bank’s International Bank for Reconstruction and Development (IBRD), which is the largest multilateral development bank in the world.

The IBRD is targeting issuance of $150 million in floating rate Catastrophe-Linked Capital at Risk Notes that will be sold to investors to deliver the capital to support a parametric earthquake insurance arrangement with the Republic of Chile, we’ve been told.

Chile is seeking this quake protection to help counter the effect a damaging earthquake could have on its economy and to secure disaster risk financing.

The proceeds from the sale of the notes will be used by the IBRD to fund sustainable development projects in member countries, while it will enter into an insurance agreement with Chile to make the payouts on the occurrence of any qualifying quakes.

This is a way to make the resulting catastrophe bond notes more ESG-aligned, which can help to make them more attractive to certain investors as well.

The notes will feature a parametric trigger and provide their protection on a per-occurrence basis, across a three-year term, we understand.

The parametric trigger is similar to the one used in Mexico’s cat bond, so depth, magnitude and location of an earthquake are all important, in defining the payout rate for a qualifying quake event.

The IBRD – Chile 2023 catastrophe bond notes can be triggered to make a 30%, 70% or 100% payout of principal, dependent on these factors of quake depth, magnitude and location.

It’s a type of parametric quake in a box trigger, but with numerous boxes running the length of Chile and extending into neighbouring countries so a major quake on Chile’s borders, or off the coast that could cause a tsunami, are captured.

We understand tsunami impacts are covered under the terms of the new Chile cat bond deal.

The proposed $150 million of Chile earthquake notes will have an initial modelled attachment probability of 1.48%, an initial base expected loss of 1% and are being offered to investors with pricing guidance of 4.75% to 5.5%, we’re told.

Update 1:

The Republic of Chile is targeting a potential doubling in size of its new World Bank facilitated catastrophe bond, with the issuance size increasing to between $250 million and as much as $300 million, we understand.

At the same time, the pricing has now been fixed at the bottom-end of initial guidance, for a spread of 4.75%.

Update 2:

The target size of the new Chile quake catastrophe bond issuance has been increased again, with now between $325 million and $350 million aimed for.

Update 3:

The Republic of Chile benefited from strong execution in the catastrophe bond market, with this transaction finalised to provide the raised and upper target of $350 million of earthquake protection for the country, while the notes priced at the low-end of initial guidance, for a spread of 4.75%.

Update 4:

A further $280 million of parametric earthquake catastrophe swaps were also issued, to bring Chile’s protection through this World Bank IBRD executed arrangement to $630 million.

The World Bank also explained the investor breakdown for the cat bond issuance, and the breakdown of counterparties for the catastrophe swap by region.

Catastrophe Bonds Investor Distribution

By Investor Type By Geography
Asset Managers 15% Europe 54%
ILS Fund 76% North America 40%
Insurer/Reinsurer 3% Bermuda 4%
Pension Fund 6% Asia 2%

Catastrophe Swap Counterpart Distribution

Europe  – 60%

North America  – 36%

Bermuda  – 4%

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