Jamaica’s cat bond “doing what it was designed to do” – Lefferdink, Aon Securities

As the catastrophe bond market awaits an official determination on the potential payout of Jamaica’s $150 million IBRD CAR Jamaica 2024 parametric cat bond after hurricane Melissa, a representative of one of the deal’s structuring agents has said that early signs are that the cat bond structure is “doing what it was designed to do.”

Chris Lefferdink, Head of Insurance Linked Securities, North America at Aon Securities, the specialist investment banking, broker-dealer and ILS unit of the global insurance and reinsurance broker, provided comment on the IBRD Jamaica cat bond one day after its landfall.

Aon Securities was one of the key players that helped to get the World Bank facilitated catastrophe bond to market, acting as joint structuring agent, joint bookrunner and also joint manager for the issuance of insurance-linked securities (ILS), alongside Swiss Re Capital Markets.

So there are few others better qualified to opine on the cat bond and how hurricane Melissa may affect it.

On the rationale and role the cat bond plays for Jamaica, Lefferdink explained, “Jamaica’s catastrophe bond shifts storm risk to global investors, allowing the country to access funds quickly after a major event.

“This helps communities recover faster and broadens the safety net of insurance protection.”

He added, “Jamaica’s catastrophe bonds are a great example of how new forms of insurance can deliver funding quickly after extreme weather.

“Innovation in risk modeling and structured finance is essential to building resilience for communities when they need it most.”

Moving onto the landfall of hurricane Melissa as a major category 5 hurricane with 180mph+ winds, Lefferdink noted that, “Early data from the National Hurricane Center shows Hurricane Melissa’s pressure has stayed below 900 millibars in several areas — a clear sign of just how powerful this storm is.

“Under the IBRD 136 Jamaica cat bond, that level of intensity could trigger a 100% payout once it’s confirmed by an independent reviewer.”

He went on to say that, “While the final numbers are still being verified, the early signs suggest the transaction is doing what it was designed to do: getting critical funds to the country quickly after a major disaster.”

Comments which suggest and further reflect the general feeling in the market that, for the cat bond a 100% payout is the likely end scenario, although still needing to be confirmed by the calculation agent at this stage.

Lefferdink further stated, “The catastrophe bond market has grown by over 50% to nearly $55 billion since year-end of 2022, underscoring investors’ confidence in this asset class and its role in addressing the protection gap.

“Public-private partnerships like Jamaica’s continue to highlight how parametric insurance can deliver rapid, transparent relief in the wake of severe storms.”

Also read:

– Hurricane Melissa crosses Jamaica cat bond parametric boxes at 892mb, 100% payout likely.

– Hurricane Melissa losses in Jamaica likely to fall to reinsurers, says AM Best. BMS suggests $5bn+.

– Melissa insured impacts in the billions. Jamaica cat bond full loss most likely: Twelve Securis.