Jamaica continues to work with the World Bank on a first catastrophe bond for the country the Finance Ministry has said and reflecting the importance of disaster risk financing, in recent weeks it has received a roughly $3.5 million payout under its parametric CCRIF insurance coverage.
The payout comes after the torrential rainfall from tropical cyclones Zeta and Eta impacted the Caribbean island nation triggered the parametric excess rainfall protection that Jamaica has.
The CCRIF SPC (formerly known as the Caribbean Catastrophe Risk Insurance Facility) provides excess rainfall parametric insurance coverage, as well as parametric risk transfer for peak perils such as hurricanes and earthquakes.
The excess rainfall product was designed to ensure impacts from tropical cyclones that deliver extreme rainfall levels are protected against and late in the 2020 hurricane season Jamaica was impacted by two tropical storms, Zeta in October and Eta in November which both brought significant rainfall to the island.
Jamaica’s Ministry of Finance reported that the storms and resulting rainfall caused loss of life and damage to property and infrastructure, particularly the country’s roads.
As a result of the triggering of the parametric rainfall insurance, Jamaica has received roughly US $3.5 million from the CCRIF under its 2020/21 excess rainfall policy.
Dr. Nigel Clarke, Finance Minister of Jamaica said in an announcement, “We know from experience of Jamaica’s susceptibility to natural disaster events including flooding, and the significant damage it can cause to our infrastructure, which is why we have implemented a multi-layer strategy with a menu of financial instruments to manage the financing of disaster risk.
“As we continue to simultaneously respond to the COVID-19 pandemic, this payout, and certainly our participation in CCRIF generally, as well as other similar facilities, reduces the need for the shifting of fiscal resources from other priority areas to respond to disasters.”
Jamaica already has a program of disaster risk financing solutions in place, with parametric disaster insurance from the CCRIF just one important component.
Jamaica also has a disaster-linked contingent credit facility in place and has capitalised its own disaster contingency fund.
But it is the catastrophe bond work with the World Bank that has now been underway for some years and in 2020 this has been delayed by the outbreak of the COVID-19 pandemic, Jamaica’s Ministry of Finance said.
The Ministry said that the government of Jamaica continues to work with the World Bank on a catastrophe bond issuance, although the placement had been delayed.
It had been thought Jamaica would come to market with its first catastrophe bond earlier in 2020, but the pandemic impacted investor markets and so it was thought better to delay.
Given issuance conditions in the catastrophe bond market have been getting steadily more conducive for sponsors, with pricing coming down over the last few months. It’s now possible Jamaica and the World Bank could look to test investor appetites again and consider bringing the cat bond to market in 2021.
We will, of course, keep you updated should that happen.