COSEFIN countries seek joint World Bank catastrophe bond

The Council of Ministers of Finance of Central America, Panama and the Dominican Republic (COSEFIN) hopes to tap into the capital markets for disaster insurance protection through a joint catastrophe bond issuance, with the support of the World Bank.

The COSEFIN countries already benefit from parametric disaster insurance protection through the CCRIF SPC, but having noticed the success of Jamaica’s single-country catastrophe bond in the last year, these countries are exploring an opportunity to secure multi-country cat bond coverage with the World Bank’s help.

The World Bank has had a project open for some years to provide input and assistance to the disaster risk financing needs of the Central America and Caribbean countries.

COSEFIN, as a specific group of the Ministers of Finance of governments in the region, met recently and catastrophe bonds were a topic of discussion.

In broader disaster risk management terms, securing an additional layer of protection from the capital markets is seen as a way to reduce fiscal risks from disasters and protect their economies.

At the same time, it was recognised that catastrophe bond issuance could be more efficient and the coverage more cost-effective if a joint approach is adopted by the COSEFIN countries.

The region is seen as highly vulnerable to a range of natural disasters, from earthquakes to hurricanes and the Ministers of Finance recognise the need to better protect their fiscal budgets and also reduce their reliance on borrowing to recover from natural catastrophe events.

The COSEFIN meeting agreed that a joint catastrophe bond would be a positive initiative to pursue and identified working with the World Bank on this as the right route to pursue.

They will now evaluate catastrophe bonds as an instrument and try to identify whether it would be economically feasible for the COSEFIN countries, while also looking to learn from other countries experiences in the cat bond market.

As with any such initiative, there is no guarantee a COSEFIN sponsored catastrophe bond will ever make it to market and recent World Bank issues have taken years to facilitate, so this is perhaps just the start of a long process for the governments of the COSEFIN region.

The World Bank through its IBRD Capital-At-Risk Notes Program has already brought one joint cat bond issue to market, for the Pacific Alliance members.