The government of the Philippines has drawn $80 million to help in the recovery from super typhoon Rai (Odette) from the World Bank supported catastrophe contingent line-of-credit it has in place through a Catastrophe-Deferred Drawdown Option arrangement, dubbed the CAT-DDO 4.
As we reported more than one week ago, the Philippines had put the World Bank on notice for its catastrophe contingent line of credit, through the CAT-DDO instrument.
The financing facility is designed to provide up to US $500 million of capital to the Philippines government, in order to help it manage the financial impacts of natural or man-made disasters and disease outbreaks. The CAT-DDO can be triggered, or activated, on a state of emergency declaration.
That declaration was made, as President Rodrigo Duterte officially declared a State of National Calamity on December 21st.
Typhoon Rai, which was locally known as typhoon Odette, slammed into the Philippines and caused impacts for close to 2 million people, across 400 municipalities and cities.
As well as injuries and loss of life, extensive damage to properties, public infrastructure (roads, bridges, seaports, airports), and the farming sector was experienced.
Because of this and after the declaration of a state of emergency, the Philippines government requested to draw funding from its catastrophe contingent line of credit, the CAT-DDO 4 on December 23rd 2021 and on December 28th, the World Bank released US $80 million to support the recovery and reconstruction efforts.
“In times of calamities like typhoons and floods, poor families suffer disproportionately,” explained Ndiamé Diop, World Bank Country Director for Brunei, Malaysia, Philippines, and Thailand. “The World Bank stands with the country during this difficult time. We are committed to help hasten the country’s recovery and reconstruction efforts, restore social services, and strengthen the country’s defenses against future disaster risks.”
The Philippines government has said that it intends to draw a further $120 million from the CAT-DDO in the New Year as well, in order to have that loan fall into its 2022 national budget.
As we also reported on December 22nd, the Philippines Government’s Treasury department had issued a notice to the calculation agent requesting that an assessment be made as to whether the recent typhoon might have triggered its World Bank issued IBRD CAR 123-124 catastrophe bond coverage.
At this stage we haven’t heard any update on this and we understand that the calculation process can take a number of weeks, depending on the complexity of the modelling process that calculation agent AIR Worldwide needs to undertake.
Typically, an event report needs to be submitted within ten days of a calculation date, but that calculation date can be set at a period of days after the actual catastrophe occurrence itself.
Of course, it can also be faster and if AIR Worldwide has access to all the data it needs, on wind speeds, precipitation and the like, then its models can be run more quickly and a determination more easily be made.
Interestingly, the modelled loss trigger for the Philippines catastrophe bond notes that are exposed, the $150 million of tropical cyclone disaster insurance protection from the Class B tranche of notes, can only be triggered if the modelled loss determination comes out above PH 40.64 billion (Philippine Peso), which is almost US $800 million, we understand.
News reports about the impacts of typhoon Rai cite damages of around PH 39.3 billion so far, which is roughly US $770 million.
So the economic damage experienced looks like it may be close to sufficient, in terms of quantum, to trigger the World Bank cat bond notes.
However, it’s important to note that the risk model uses a notional portfolio and may not include all economic damages (it’s hard to be certain), making it very difficult to identify whether any loss may be possible for holders in the notes.
As we’ve previously reported, the Philippines government issued notice to the calculation agent for the cat bond after super typhoon Goni was thought to be an applicable event, so requiring a calculation of the modelled losses to be undertaken.
However, typhoon Goni was thought to have only driven around PH 20 billion of damages, so roughly half the economic impact of typhoon Rai.
While Goni had higher wind speeds at landfall, it seems typhoon Rai has been more damaging due to the path it took across the Philippines and so poses more of a threat to holders of the Philippines catastrophe bond.
As a reminder, the $150 million of Class B tropical cyclone exposed cat bond notes are able to make a payout in increments of 0%, 35%, 70% or 100% of principal, dependent on how severe a qualifying loss event is and how high the resulting modelled loss is calculated to be.
We’ll update you if and when we hear anything specific on the fate, or otherwise of the Philippines catastrophe bond.