Jamaica catastrophe bond grant agreements signed, deal imminent

The project to issue a first catastrophe bond to benefit Jamaica has made further progress this month, with an important grant approval now received and the World Bank facilitated cat bond deal launch now imminent.

Of course, any regular Artemis readers will know that this World Bank project to issue a sovereign catastrophe bond for Jamaica has been underway for a number of years.

In fact, we first wrote about formalised work that had begun between the World Bank and the Jamaican government on a possible catastrophe bond issuance almost three years ago.

While the country had been exploring avenues to increase its disaster risk insurance even prior to that.

These transactions take time though, particularly sovereign cat bond arrangements for first-time beneficiaries and three years later the stage is increasingly set for the first Jamaica catastrophe bond to come to market.

As we reported back in March, the government of Jamaica was seen to be keen that its first cat bond came to market in 2021, hoping for it to be issued in advance of the peak of the hurricane season.

The accepted peak of the hurricane season is really around September time, so there is still time remaining to hit that target.

Then, in May we reported that the World Bank’s work on Jamaica’s first catastrophe bond found that having the disaster risk financing instrument in place is expected to narrow the countries natural disaster financing gap.

In that last article on the anticipated cat bond for Jamaica, we also detailed the budgeted spend and expectation that the World Bank Treasury will issue the catastrophe bond on behalf of Jamaica’s government, with its IBRD Capital-At-Risk notes program the likely structure that will be used for the issuance.

Now, we’re told by sources that important grant funding to pay for the majority of the catastrophe bond premiums and upfront issuance costs have now been approved and agreements signed.

This has involved the arrangement of a trust fund to channel now signed off grant funding from the UK and Germany. In addition, further funding from USAID is now also signed off, we’re told.

Jamaica had secured support from the UK and Germany through the Global Risk Financing Facility (GRiF), and the United States through USAID, while the World Bank has been both facilitating the cat bond issuance and acting as an advisor and placement agent.

With these important grant agreements now signed, the funding to support most of the premiums and transaction costs for the deal can now begin to flow and work to get the deal to market will begin.

We’re told that the catastrophe bond will be issued under the World Bank Treasury’s IBRD Capital-At-Risk notes program, that the cat bond will feature a parametric trigger and that it will provide Jamaica with a capital markets source of disaster insurance against impacts caused by hurricanes.

Sources also explained to us that the offering of this catastrophe bond for Jamaica should begin soon, with the deal expected to be marketed to investors in the next week or so.

As a result, we hope to be able to bring you more details on the cat bond after that, tracking and reporting on its progress to completion.