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Pricing fixed for World Bank’s first Philippines cat bond


The first catastrophe bond ever issued to cover natural peril exposures in the Philippines has now been priced, as the landmark transaction from the World Bank gets nearer to completion.

philippines-flagThe IBRD CAR 123-124 cat bond transaction is set to provide the government of the Philippines with a $225 million source of capital markets backed disaster insurance protection.

The deal sees two classes of cat bond notes being issued and sold to investors, with the proceeds used to collateralize underlying swap agreements that provide the risk transfer and reinsurance protection to the Treasury of the Republic of the Philippines, we understand, with one class of notes devoted to coverage for each of the two perils.

The Treasury of the Republic of the Philippines will benefit from an underlying catastrophe swap agreement between it and the World Bank to facilitate the protection, while the capital markets funding supports this.

This cat bond transaction for the Philippines was launched to the market over a fortnight ago, as we reported at the time, and is seen as a significant step and a milestone for the World Bank in rolling out disaster risk transfer.

A Philippines catastrophe bond has been in the offing since at least 2010, when we first wrote about the potential for the country to become a beneficiary of catastrophe bond backed disaster risk financing and insurance.

The transaction seeks to secure the Philippines a source of both earthquake and tropical cyclone insurance coverage, on a modelled loss trigger basis across a multi-year term, while the underlying catastrophe risk swap agreements will provide the per-occurrence risk transfer and reinsurance protection to support the Republic of the Philippines needs.

While the cat bond had been pitched to investors at between $225 million and $300 million in size, it will settle at the lower-end of $225 million, as we reported last week here.

The pricing has now been fixed, with both tranches of notes settling with a risk margin fixed within the upper-half of guidance ranges.

The first tranche of $75 million IBRD CAR 123 Class A notes, that will be exposed to Philippine earthquake risks, have an initial expected loss of 3% and were offered to ILS investors with a risk margin (spread) of between 5% and 5.75%. This tranche has now been priced with the risk margin at 5.5%, we understand, so in the upper-half of guidance.

The second tranche of $150 million IBRD CAR 124 Class B notes, exposed to Philippine tropical cyclone risk, have an initial expected loss of 3% and were offered to investors with a risk margin of between 5.25% and 6%. This tranche has now been priced with the risk margin fixed at 5.65%, we’re told, which is only slightly above the mid-point.

Now priced, the transaction heads towards a settlement at the end of this week, our sources said, meaning that the Philippines will technically become the beneficiary of $225 million of tropical cyclone and earthquake disaster insurance protection as from the following week, with the risk period beginning November 24th.

Getting this first Philippines cat bond to market has been a long road for the World Bank, but persistence pays off and finally we will see cat bond protection coming into force for the country, adding to its other disaster risk financing arrangements.

You can read all about this IBRD CAR 123-124 issuance in our comprehensive catastrophe bond Deal Directory.

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