IDB arranges its first parametric catastrophe swap for Belize, Swiss Re backs it

The Inter-American Development Bank (IDB) has successfully arranged its first sovereign parametric catastrophe swap transaction, securing $20 million of hurricane risk transfer for Belize, underwritten by global reinsurance firm Swiss Re.

This first of its kind transaction to be facilitated by the Inter-American Development Bank (IDB) is seen as an important step in bringing more disaster risk transfer and financing to its member countries and one that can be repeated for other natural disaster exposed nations.

In executing this catastrophe swap for Belize, the IDB has helped the country secure an almost two year source of parametric hurricane protection.

The IDB arranged and executed on the transfer of hurricane risk to international reinsurance markets, with Swiss Re providing the underlying parametric coverage that is designed to enhance Belize’s resilience and ability to respond across two hurricane seasons.

The catastrophe swap arrangement runs from August 1st this year through to May 31st 2028, so covering the 2026 and 2027 hurricane seasons for Belize.

If the pre-agreed parametric triggers are met, Belize will be eligible for $20 million in coverage, split as a maximum payout of $10 million per policy year.

The catastrophe swap has been executed under the IDB’s Ready and Resilient Americas program, through which it had announced plans in 2025 to support Latin American and Caribbean nations in issuing catastrophe bonds and swaps, as part of a broader initiative aimed at strengthening financial resilience against natural disasters.

Later last year, the IDB also unveiled a major expansion of disaster risk financial instruments designed to enhance the use of reinsurance and the capital markets for risk transfer.

In this case, only the reinsurance markets have been utilised, with one market (Swiss Re) supporting the entire parametric hurricane risk transfer arrangement for Belize.

The IDB said that its first successful catastrophe swap execution showcases “how countries can transfer disaster risks to international markets and access rapid liquidity following extreme events.”

It forms part of the IDB’s broader work to help Belize enhance its resilience to natural disasters, building on $25 million of contingent financing already available to the country through the IDB’s Contingent Credit Facility for Natural Disaster Emergencies (CCF) and $118 million in approved loans protected by Climate Resilient Debt Clauses (CRDC), that allow for principal payments to be postponed in the event of a qualifying disaster.

Importantly in this case, Belize has contributed towards the risk premium paid for the parametric catastrophe swap protection, with support from the Ready and Resilient Americas Initiative and donor contributions from the French Climate Fund.

“The catastrophe swap highlights the importance of partnerships in scaling innovative financial solutions for resilience and reflects Belize’s strong commitment and engagement throughout the process,” the IDB stated.

IDB Treasurer Francisco Ramon Ruiz Garcia commented, “The IDB’s Treasury Client Solutions team has executed its first Catastrophe (Cat) Risk Transfer for Belize. When Cat Risk is becoming increasingly important for countries in LAC (not only hurricanes but also earthquakes and other perils) the IDB has started offering this product to improve the toolkit offered to our borrowers. This is the last product of an strategy composed of contingent credit facilities, Climate Resilient Debt Clauses, Cat bonds and Cat insurance.”

In the past, larger catastrophe swap transactions have seen insurance-linked securities (ILS) market participants supporting the capacity required to back them under World Bank arrangements.

As the IDB scales up its disaster risk transfer activities for members, we expect in time these transactions will increase in size and require more capital to support them, either through larger single country deals or multi-country pooled arrangements, at which time the capital markets may have an opportunity to get involved.