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No Philippines cat bond pay out for storm Megi (Agaton) winds


The calculation agent has now found that holders of the Philippines governments World Bank issued IBRD CAR 123-124 catastrophe bond do not face any loss of principal following the wind-related impacts of tropical storm Megi (locally known as storm Agaton), Artemis has learned.

calculation-catastrophe-bondTropical storm Megi (Agaton) never made typhoon status when it impacted the Philippines in April 2022, with its sustained winds only reaching around 65 km/h, while wind gusts were higher towards 80 or 90 km/h.

But damage from Megi was widespread and as we reported at the time, the Bureau of the Treasury of the Republic of the Philippines issued a notice to the calculation agent of its World Bank catastrophe bond to assess whether the storm may have been sufficiently strong to deserve any pay out under the disaster insurance policy linked to the cat bond.

After a far stronger storm, super typhoon Rai, the World Bank supported IBRD capital-at-risk notes issuance paid out, as the Philippines government received a US $52.5 million payout of the cat bonds principal, representing a 35% payout of its $150 million Class B cyclone risk exposed cat bond notes.

As we then explained last week, there is no additional payout due after the calculation of typhoon Rai’s rainfall, as this cat bond has separate processes so it can cover storms that are significant rain-bringers.

Which is exactly what typhoon Megi (Agaton) was, a weaker tropical cyclone, but one that caused significant damage largely due to its rains and the damage they caused through flooding and landslides.

Landslides and flooding destroyed property and infrastructure across the Philippines, as the storm made two landfalls as it passed over the country, resulting in more than 175 people being killed by storm Megi, largely in the Visayas region of the Philippines.

The government noted that significant monetary damage had occurred, especially to agriculture and infrastructure.

While Megi did not reach typhoon strength winds, which are typically accepted to be above the same threshold as hurricane status, the Philippines government still wanted to explore whether it could make a recovery under its catastrophe bond.

The Bureau of the Treasury sent notice to the calculation agent AIR Worldwide to perform an event calculation based on this storm, and now the first determination has come back, for the wind-related component of the modelled loss type trigger.

We’re now told that no payout is due, as the calculation process deemed storm Megi’s winds not severe enough to breach the trigger of the Philippines catastrophe bond.

However, the modelled loss calculation that AIR undertakes looks at both precipitation as well as wind speeds. In the case of storm Megi, rainfall is likely to be the main contributor to the modelled loss amount, that the risk modeller derives from its post-event calculation process.

The first step is completed, in that the calculation process for Megi’s winds shows no loss of investor principal for the cat bond holder.

The precipitation calculation for the Philippines catastrophe bond will be undertaken as soon as the data is available.

As we explained last week, this can take some time and in the case of typhoon Rai, the rainfall calculation was only completed nearly four months after the first payout for wind damage was determined to be due.

As a result, this may all come down to the values exposed to the precipitation, in the model itself and it’s possible this could take another few months before holders of the Philippines cat bond know there is not going to be any reduction in principal because of storm Megi.

After the triggering and payout from typhoon Rai, the Philippines World Bank cat bond has $97.5 million in disaster insurance coverage remaining specifically for tropical cyclones, so storms and typhoons, from the Class B tranche of notes.

You can read all about the landmark Philippines catastrophe bond, the IBRD CAR 123-124 issuance from the World Bank’s IBRD, in our comprehensive catastrophe bond Deal Directory that includes details on more than 850 transactions.

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