Philippines gets $500m for typhoon Mangkhut from World Bank CAT DDO 2

The Philippines is to benefit from a payout of almost $500 million to assist with its recovery from recent typhoon Mangkhut, as the countries catastrophe contingent line of credit provided by the World Bank has been triggered.

The Philippines entered into a $500 million arrangement with the World Bank to support its management of natural disaster risks in 2015, in the form of a $500 million Second Disaster Risk Management Development Policy Loan with a Catastrophe-Deferred Drawdown Option (CAT-DDO 2).

These instruments act a little like a catastrophe bond, in that they provide a source of capital contingent on disaster being declared.

So they are similar to an insurance or reinsurance policy, or a catastrophe bond, except that once triggered the contingent financing facility opens up a loan, or line of credit, that does have to be repaid, albeit at attractive terms.

This Catastrophe-Deferred Drawdown Option enabled the Philippines to access a line of credit after a “state of calamity” was declared by the President, which has occurred due to typhoon Mangkhuts impacts in the northern region of Luzon.

The World Bank said that it has now released $496.25 million to support the Philippine government’s recovery efforts, rehabilitation, and reconstruction in the areas impacted by Typhoon Ompong (internationally known as typhoon Mangkhut) in mid-September this year.

“We express our sympathies to all the Filipino people affected,” said Mara K. Warwick, World Bank Country Director for Brunei Darussalam, Malaysia, Philippines and Thailand. “Natural disasters can exacerbate poverty through loss of lives, livelihood, property and infrastructure, and can roll back years of development gains. They disproportionately disrupt the lives of poor and vulnerable people, particularly women, the elderly and children. We want them to know the Bank supports the country’s efforts to address their needs.”

The Philippines National Disaster Risk Reduction and Management Council (NDRRMC) said that over 700,000 families (almost 3 million people) were impacted by the storm, with 138 injured and 68 dead and direct damage to infrastructure and agriculture estimated at 33.6 billion pesos (around US $623 million).

The payout of the Second Disaster Risk Management Development Policy Loan with a Catastrophe-Deferred Drawdown Option (Cat-DDO 2) will provide the Philippine Government with the ability to assist people and communities as they recover from the typhoons impacts.

The contingent nature of the CAT-DDO 2 facility, enabling the Philippines to access the $500 million of capital after the most severe disasters or natural catastrophes strike.

It was designed to provide immediate liquidity in the face of a natural disaster striking and the financing is also bundled with technical assistance to support the government’s disaster risk reduction and management efforts.

The Cat-DDO 2 instrument has a drawdown period of three years and can be renewed up to four times across a total of 15 years. Amounts repaid during the drawdown period are immediately available again for subsequent withdrawal, should further disaster strike.

The World Bank said that the Philippines has renewed its CAT-DDO 2 to make the catastrophe contingent credit line available until September 30th 2021.

The Cat-DDO is one of the many disaster risk financing and insurance or reinsurance like tools that the World Bank Group facilitates to aid governments in their responses to natural disasters, with catastrophe bonds another such instrument.

Other Cat-DDOs are in-force in the Latin America and Caribbean region, including Colombia, Costa Rica, El Salvador, Guatemala, Panama and Peru, while other countries including Romania and Kenya are also working towards having such contingent financing facilities in place.

The Philippines also benefits from a catastrophe swap that provides $206 million of protection and has been backed by reinsurance capital providers, including ILS fund specialist Nephila Capital. This catastrophe swap provides the reinsurance capital to back a regional Philippines parametric insurance pilot.

The Philippines has repeatedly looked at catastrophe bonds as another tool that could be utilised to provide risk capital in the event of natural disasters and is also talking to the insurance and reinsurance market about ways to better protect its government infrastructure as well.

Typhoon Mangkhut was estimated to have caused up to $2 billion of insured losses in Hong Kong, China and Macau, and has also triggered a parametric insurance facility in Guangdong, China.