World Bank Capital-at-Risk Notes Program news

According to executives at the World Bank, artificial intelligence (AI) based improvements to catastrophe risk modelling could in future allow more transactions to be brought to the catastrophe bond market, with less lead time and potentially wider investor acceptance.

The World Bank has approved the Regional Emergency Preparedness and Inclusive Recovery Program (REPAIR), which is designed to boost financial resilience against climate shocks for Eastern and Southern African countries and leverages private market parametric disaster insurance risk transfer alongside its contingent credit DDO solution.

The World Bank is reportedly aiming to issue its first drought catastrophe bond over the next 12 – 18 months, which would most likely be focused on Africa, George Richardson, director of the capital markets and investment department at the World Bank Treasury, told Reuters.

The World Bank has now facilitated and issued over US $4.8 billion in catastrophe bonds across 17 transactions we have covered over the years, with $745 million issued over the course of just a few weeks in 2024 to support Mexico and Jamaica’s disaster risk transfer and financing needs.

Jamaica is looking to renew its catastrophe bond cover that expired at the end of 2023 and the country’s Finance Minister Nigel Clarke said yesterday that a longer-term of protection will be sought with a new cat bond deal, with four hurricane seasons of cover to be the target.

The World Bank announced a significant expansion of the use of catastrophe bonds, reinsurance and instruments such as parametric risk transfer for countries exposed to large-scale disasters, with an ambition to embed catastrophe insurance and risk transfer instruments more deeply into its financing operations.

After it was reported that the World Bank targets a significant increase in the use of catastrophe bonds by its client countries, already a number of potential future World Bank cat bond deals are being discussed.

The World Bank has ambitious plans to expand its use of catastrophe bonds for member countries by roughly 400% over the next five years, growing the amount of World Bank issued cat bonds outstanding to as much as $5 billion, Bloomberg has reported.

The Finance Minister of Jamaica Nigel Clarke has told Reuters that his country intends to renew its catastrophe bond coverage when it reaches maturity at the end of this year and will do so as a stand-alone cat bond for Jamaica, or as a regional Caribbean wide one if others want to participate.

The fact capacity and capital was tight in the catastrophe bond market at the time of the issuance of the $350 million of IBRD – Chile 2023 cat bond notes drove the World Bank team to look to traditional re/insurers and the issuance of simultaneous catastrophe swaps, resulting in much stronger execution for Chile.