Nepal government approves World Bank earthquake cat bond mandate agreement

According to reports from Nepalese news sources, the country’s government Council of Ministers has approved signing a Mandate Agreement for the Nepal Earthquake Catastrophe Bond project with the World Bank.

Back in July, we reported that the World Bank had begun working on a proposed project to deliver a parametric earthquake catastrophe bond for Nepal, targeting between US $80 million and up to US $190 million of fully-collateralized disaster risk financing from the capital markets for the South Asian country.

We also said at the time that the proposed project envisages delivery of the design, structuring, and issuance of a three-year parametric catastrophe bond for Nepal.

The proposed parametric earthquake cat bond would provide Nepal with valuable disaster risk financing and protection in the event of major losses from quakes hitting the South Asian country.

The World Bank would intermediate the cat bond transaction, and support its design, delivery and impact assessment.

While there isn’t much information available to share in regards to the mandate agreement, the fact that Nepal’s government has approved its signing marks a formal step forwards towards progressing the World Bank cat bond project with government backing.

The project aims to establish a catastrophe bond funded by international capital markets to provide disaster risk financing for earthquake events in Nepal.

However, it’s important to note that while government approval puts the process in motion, it does not guarantee that the transaction will be issued.

Further work remains to be undertaken to complete the risk analysis, structuring of the transaction and define the necessary coverage amounts, premium costs, and parametric payout triggers of the cat bond.

But, if this project goes ahead it would result in the first catastrophe bond to cover risks in Nepal and a rare cat bond that provides coverage for South Asian exposures.