Pacific Alliance

The Pacific Alliance, a Latin American trade bloc made up of Chile, Colombia, Mexico and Peru, would like to expand on the coverage provided by their catastrophe bonds, with hydro-meteorological risks including tropical cyclones, drought, floods and even cold weather all mooted as potential perils to include.

The Ministry of Finance of the Government of Peru has confirmed that it is awaiting a $60 million payout from the World Bank after a recent earthquake triggered its catastrophe bond protection, coverage that it said complements its national risk management policy.

Peru’s earthquake catastrophe bond will make a $60 million partial pay out of its principal to the country after its parametric triggering was confirmed in the calculation agent report, it has now been confirmed to us.

The decision as to whether Peru’s earthquake exposed IBRD CAR 120 catastrophe bond will payout a portion of the investor principal is expected within 20 days of the magnitude 8.0 earthquake that struck Peru on Sunday 26th May, according to the country’s Finance Minister.

A magnitude 8.0 earthquake that struck Peru yesterday, Sunday 26th May, could trigger the IBRD CAR 120 catastrophe bond, which was part of the Pacific Alliance issuance, with the available data suggesting that a 30% loss of principal should be expected by investors in the cat bond.

The four Pacific Alliance countries, Chile, Colombia, Mexico and Peru, are beginning the work alongside the World Bank to identify potential solutions to help them transfer climate related natural disaster risks, including identifying whether further catastrophe bonds would be suitable.

The federal government of Mexico has cited new “innovations” that improve the coverage of its latest catastrophe, which was secured as part of the World Bank’s $1.36 billion multi-country Pacific Alliance cat bond issuance that completed recently.

The World Bank has hailed the “very strong demand” for its recently completed issuance of $1.36 billion of parametric earthquake catastrophe bonds, to the benefit of Pacific Alliance member countries Chile, Colombia, Mexico and Peru, calling the transaction “historic” and highlighting some records it has set.

The World Bank supported issuance of five tranches of earthquake catastrophe bonds, for the four member nations of the Pacific Alliance trade bloc in Latin America, is now going to settle at an overall transaction size of $1.36 billion, with all tranches of notes now priced at the bottom end of already reduced guidance.

The first catastrophe bonds to benefit all four member nations of the Pacific Alliance trade bloc in Latin America is set to increase in size, as the mooted $1 billion cat bond issuance has now had its target increased to as much as $1.39 billion of earthquake risk coverage for the region.