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Philippines seeks cat bond event calculation for storm Megi (Agaton)


The Bureau of the Treasury of the Republic of the Philippines has issued a notice to the calculation agent of the World Bank issued IBRD CAR 123-124 catastrophe bond after the impacts of recent tropical storm Megi (locally known as storm Agaton), Artemis has learned.

calculation-catastrophe-bondIt’s the second calculation request the Philippines World Bank catastrophe bond has been subject to, having faced the same process after super typhoon Rai (locally known as Odette) might have triggered its coverage after causing extensive damage in December.

Super typhoon Rai was just that, a super typhoon with extreme sustained wind speeds and always looked like the kind of catastrophe event that a cat bond might respond to.

Which it turned out the World Bank supported IBRD capital-at-risk notes issuance did, 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.

Tropical storm Megi (Agaton) is a different catastrophe altogether, having never made typhoon status, with sustained winds only reaching around 65 km/h, while wind gusts were higher towards 80 or 90 km/h.

But it was the rainfall that came with tropical storm Megi that caused most of the damages, as landslides and flooding destroyed property and infrastructure in the Philippines, with the storm making two landfalls as it passed over the country.

Over 175 people were killed by storm Megi, largely in the Visayas region of the Philippines, while significant monetary damage has been reported by government agencies related to agriculture and infrastructure.

While Megi did not really even get close to typhoon strength winds, which are typically accepted to be above the same threshold as hurricane status, the Philippines government clearly feels the damage has been extensive enough to warrant exploring whether it can make another recovery under its catastrophe bond.

The Bureau of the Treasury has officially sent notice to the calculation agent AIR Worldwide to perform an event calculation based on this storm, we’ve learned from our sources.

As a reminder, the World Bank issued catastrophe bond provided the Philippines with $150 million of tropical cyclone disaster insurance protection on a modelled loss trigger basis through its Class B tranche of notes.

That Class B tranche has been eroded by the $52.5 million payout from super typhoon Rai, but there remains $97.5 million in disaster insurance coverage specifically for tropical cyclones, so storms and typhoons, with Megi certainly a relevant event that could qualify under the terms of the deal.

AIR Worldwide is the calculation agent for the Philippines catastrophe bond and it will now go away and run its modelled loss analysis to see whether storm Megi was sufficiently impactful to cause any further reduction in principal to the noteholders in the cat bond.

While Megi’s winds were low, the modelled loss calculation that AIR will undertake is expected to factor in precipitation as well as wind speeds and that would be expected to be the main contributor to the modelled loss amount that the risk modeller derives from its post-event calculation process.

It’s impossible to say whether that would be enough to trigger the remaining Philippines cat bond notes at this time.

It could all come down to the values exposed to the precipitation, in the model itself and it’s possible this could take a little time given precipitation data is less readily available after a storm than wind.

The now $97.5 million remaining of the Class B tropical cyclone and typhoon exposed cat bond notes tranche can payout in increments of 0%, 35%, 70% or 100% of principal, depending on how impactful a qualifying loss event has been and how high the resulting modelled loss is calculated to be by the agent, AIR.

With the event notice for tropical storm Megi (Agaton) officially submitted by the Philippines government, AIR will now run this calculation agent process and report back to the Bureau of the Treasury, as well as to investors in the catastrophe bond.

We’ll update you should we hear any more on the Philippines catastrophe bond and whether tropical storm Megi (Agaton) has triggered any payout of investor principal.

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 800 transactions.

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