Work begins on Jamaica catastrophe bond (with World Bank support)

The Jamaican government has said it is actively working with the World Bank on a catastrophe bond issuance, as the final piece of a disaster risk financing tower for the country is put into place.

Of course, Jamaica has been looking to the insurance and reinsurance market for some time now (discussions were occurring at least as far back as 2017), exploring the potential for disaster risk transfer financing instruments to assist it in becoming better protected against impacts from tropical storms and hurricanes, perhaps earthquakes as well.

Its explorations have become increasingly focused on the catastrophe bond as a vehicle to provide contingent disaster risk finance, funded by capital market investors. With any cat bond designed to work alongside other sources of protection, including more traditional insurance and reinsurance forms.

Speaking on Tuesday of this week at the Jamaica Stock Exchange (JSE) disaster risk financing seminar, Jamaica’s Finance and Public Service Minister, Dr the Hon. Nigel Clarke said that the government has partnered with the World Bank to deliver the catastrophe bond.

That’s no surprise, given the World Bank’s key role as facilitator for sovereign catastrophe bonds and other instruments backed by either institutional or reinsurance market capital.

The cat bond will be designed to meet additional funding needs when the worst disasters occur, as well as to sit alongside and complement four other layers of disaster risk financing that have already been secured.

Clarke said that the World Bank is providing the government of Jamaica with access to the necessary resources and expertise to be able to execute on a catastrophe bond issuance.

Jamaica will pay annual premiums in return for the coverage and the cat bond, which he said is in development, will be placed with investors in the capital markets.

He explained the other layers of protection that Jamaica has already secured to better protect it from natural disasters.

The country has secured an Inter-American Development Bank (IDB) pre-approved credit facility of almost US $300 million, and the government is also boosting its own contingencies fund to $10 billion, while also taking advantage of reinsurance backed protection from the CCRIF SPC and making further budget allowances for disaster resilience and recovery.

Clarke explained that the five pronged approach will ensure capital is available for different types and severities of disaster, with the cat bond one source, as well as other reinsurance support via the parametric CCRIF products the government buys,

A Jamaica catastrophe bond is expected to be parametric in nature, cover tropical cyclone or hurricane risk, as well perhaps as earthquake risk.

A reinsurance company may act as an intermediary for the issuance, as has been seen in some World Bank cat bonds. Of it could be issued more directly through the IBRD notes program, we’ll have to wait and see.

So Jamaica is clearly progressing its plans to put in place a much more robust disaster risk financing program, with this World Bank supported cat bond set to sit at its core.

It will be interesting to see just how big any Jamaican catastrophe bond could be, as the countries needs for risk capital are particularly significant, given its exposure.

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