Philippines cat bond illustrates Singapore – World Bank alignment on ILS

Singapore and the World Bank aligned their missions to collaborate on the recent landmark first catastrophe bond issuance for the Philippines, as the pair look to stimulate insurance-linked securities (ILS) issuance in Asia as a financial solution for climate resilience.

The Philippines catastrophe bond, IBRD CAR 123-124 which completed last week to provide the country $225 million of disaster insurance capacity covering certain earthquake and cyclone losses, is the first from an Asian sovereign sponsor, the first to be listed in Asia and the first cat bond notes listed on the Singapore Exchange (SGX).

Asia and its people suffer around one-third of the world’s natural catastrophes each year, with significant impacts to the economy, as well as lives and livelihoods.

Despite the well-capitalised nature of global reinsurance and the interest shown by capital market investors in catastrophe insurance linked returns, the protection gap remains significant and sovereign governments require more capacity to help them in their response and recovery when disasters happen.

The World Bank recently explained the importance of securing disaster risk financing capacity in Asia, “The negative impact of catastrophes on the region’s economy is exacerbated when governments are forced to divert money from other developmental priorities to finance disaster response and recovery. When large events strike poor countries, the impact of this fiscal strain on government budgets can last for years, or even decades.”

With Singapore targeting growth of its insurance-linked securities (ILS) industry, seeking to become a hub for Asian issuance, it is no surprise to find the country worked closely with the World Bank and the issuers and sponsor in getting this landmark deal to market.

The World Bank cat bonds for the Philippines have been supported by the Monetary Authority of Singapore (MAS) through its ILS grant program, as we explained the other day.

The cat bonds are seen as “climate proofing” for the economy of the Philippines, providing important capacity to help the country recover more quickly from disasters.

“We welcome the listing of the first sovereign catastrophe bond in Asia for the Philippines on the Singapore Exchange,” explained Ms. Jacqueline Loh, Deputy Managing Director, Markets & Development, Monetary Authority of Singapore. “Alternative risk transfer mechanisms such as catastrophe bonds provide sovereign and private sector entities access to a diversified pool of investors and capital. As a leading risk management centre, Singapore is well positioned to support the issuance of catastrophe bonds and other insurance-linked securities and contribute to strengthening disaster and climate risk resilience in Asia.”

“We are very excited about this landmark catastrophe (cat) bond listing that marks many ‘firsts’ in Asia,” said Loh Boon Chye, Chief Executive Officer Singapore Exchange. “We hope the listing of this first cat bond on an Asian exchange will pave the way for the development of such insurance-linked securities in Asia, which will provide investors globally with another avenue for portfolio diversification. With growing awareness of Environmental, Social and Governance (ESG) considerations in investment decisions, cat bonds are also being recognized for their potential social impact. As Asia’s largest listing venue for international debt securities, we will continue to support the growth of new products and structures in the debt capital markets.”

“The World Bank Catastrophe Bond for the Philippines is a great illustration of how countries can partner with the World Bank to find climate solutions addressing resilience,” said Jingdong Hua, World Bank Vice President and Treasurer. “Singapore’s efforts in developing the insurance-linked securities market aligns with the World Bank’s twin goals to end extreme poverty and boost shared prosperity. We appreciate the efforts of the Monetary Authority of Singapore and Singapore Exchange in highlighting the World Bank cat bond as an exemplary insurance solution in Asia and look forward to working with other sovereigns as they consider similar mechanisms to provision for catastrophe risks.”

Getting the Philippines cat bond launched has taken a significant global effort lasting close to a decade and Singapore’s grant scheme and close work with the World Bank has proven an important lever to enable the first Asian sovereign sponsored catastrophe bond to get to market.

By aligning with the goal of the World Bank, which is to help reduce the fiscal impact of disasters on governments and their people, Singapore has helped to get a deal to market that could stimulate other issuance across the Asian region and also raises the profile of catastrophe bonds with potential sovereign sponsors more broadly around the globe.

You can read all about the landmark Philippines catastrophe bond, the IBRD CAR 123-124 issuance, in our comprehensive catastrophe bond Deal Directory that includes details on over 600 transactions.