The government of the Philippines continues to expand its natural catastrophe related insurance and risk transfer provisions, with the latest step being a roughly US $19.6 billion cover for certain state assets, for which it is now seeking private market reinsurance protection.
The Philippines government has entered into the 1 trillion pesos insurance cover with its own Government Service Insurance System (GSIS), which has now put out to tender the reinsurance of the program, seeking a one-year source of indemnity to cover largely catastrophe exposures, as well as some other property risks.
The move follows on the heels of the Philippines securing its first catastrophe bond arrangement, a $225 million transaction that provides the government with a source of tropical cyclone and earthquake insurance protection and was issued in recent weeks.
This new so-called National Indemnity Insurance Program, will provide the government with insurance covering a range of state assets, including schools, roads and bridges, across parts of its eastern seaboard.
Roads and bridges will be covered across 25 named provinces of the Philippines, while schools will be covered in 32 provinces, cities or municipalities.
These assets are being insured against damages from fire, lightning and natural catastrophe events including typhoons, floods, earthquakes, volcanic eruptions and storm surges.
For the Philippines, this latest protection it is securing, will greatly extend the disaster related safety net it now has in place and provide significant additional support after catastrophes or severe weather and climate events occur.
Now, the GSIS is out in the market accepting bids for the reinsurance to underpin this roughly $19.6 billion of coverage. With a reinsurance arrangement hoped to be in-force later this month, around December 19th, and to run for one year.
The cover is being structured as an indemnity arrangement, unlike other disaster risk transfer programs already in place in the Philippines.
Being indemnity based, this new national catastrophe insurance program would not pay out as quickly as the parametric facility that the Philippines put in place almost a year ago or its new cat bond.
But, an indemnity cover for state assets and public infrastructure may come at a much cheaper premium, so the reinsurance markets can likely provide significant capacity to help support the GSIS’ insurance arrangement with the Philippines Treasury.
In total, the Philippines has a budget of over almost US $39.5 million for the premiums to back the reinsurance underpinning its new National Indemnity Insurance Program.
While it’s unlikely to stretch to the full program coverage, it’s certain to provide a large chunk of capacity from the global markets to support this new disaster insurance for state assets.
It’s understood that bids are coming in and we’re told the program has received significant interest from some major reinsurance groups.
It’s not clear at this time whether any insurance-linked securities (ILS) fund managers or structures have sent in bids, which would likely need to be through a rated carrier or fronting partner if they have.
The fact the Philippines is adding yet more disaster insurance and risk financing, with the support of global reinsurance markets, is particularly encouraging.
The government clearly recognises the importance of securing capacity to help it recover from disaster, support is population when catastrophes occur and to be able to rebuild, all to support lives and livelihoods.
Alongside the recent news that Indonesia has secured approximately US $770 million of natural disaster insurance coverage for state buildings and assets, the Philippines move as well can only help to further the understanding of disaster risk transfer and insurance, raising its profile in the Asia Pacific region.