The World Bank has now successfully completed the issuance of the first catastrophe bond to benefit the Philippines with a source of capital markets backed disaster insurance, as the $225 million IBRD CAR 123-124 cat bond transaction listed on the Singapore Exchange (SGX) this morning.
The Philippines cat bond transaction has achieved a number of firsts, being the first time an Asian sovereign has sponsored a catastrophe bond transaction, the first cat bond notes listed on the Singapore Exchange and the first time the World Bank has elected to list a security of any type there.
The Philippines catastrophe bond has been long-awaited, as discussions have been ongoing between the countries government and the World Bank 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.
Finally, the awaited cat bond launched to the market in late October (as we reported at the time), seeking $225 million or more of cat bond backed reinsurance protection for the Treasury of the Republic of the Philippines to protect the country against the financial impacts of earthquake and tropical cyclone events.
The Philippines cat bond transaction did not increase in size, as it was fixed at $225 million roughly two weeks after its launch, a few days after which the pricing was fixed for each of the tranches of notes with the risk margin paid to investors settling in the upper-half of guidance for each peril.
Then, it became clear another first would be achieved by this landmark catastrophe bond transaction, as we reported that the Philippines cat bond notes would be listed on the SGX.
The World Bank announced the completion of the transaction this morning, highlighting that the issuance through the International Bank for Reconstruction and Development’s (IBRD) Capital-At-Risk Notes program will provide the Philippines with $75 million of financial protection for losses from earthquakes and $150 million against losses from tropical cyclones across a three year term.
Payouts can be triggered when an earthquake or tropical cyclone meets the predefined criteria under the terms of the catastrophe bond and its modelled loss trigger.
“Many countries in Asia are highly vulnerable to natural disasters, which makes finding innovative, capital markets solutions a major priority to address the impact on their economies,” commented Jingdong Hua, World Bank Vice President and Treasurer. “The World Bank CAT bonds for the Philippines are the first to be sponsored by the government of an Asian country and the result of a close and long-term partnership between the World Bank and the Philippines government.”
“The World Bank has been working with the Philippines government for the last eight years to help strengthen the country’s resilience against natural disasters,” added Mara K. Warwick, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand. “Through the intermediation of the World Bank, these CAT bonds allow the Philippines to transfer natural disaster risks to the capital markets while enabling the authorities to respond quickly to the needs of citizens when calamities strike. This once again demonstrates the Philippines’ capability to develop innovative financial solutions to mitigate impacts of extreme climate and weather-related events as well as major earthquakes.”
“The World Bank CAT bond is a vital building block to our long-term disaster risk and insurance strategy, which we have been steadily establishing since the aftermath of Typhoon Ketsana and Parma in 2009,” Rosalia V. de Leon, National Treasurer of the Philippines explained. “This instrument addresses the financing gap for immediate post-disaster needs for extremely high-risk events. It complements the government’s existing disaster risk financing mechanisms designed to ensure comprehensive financial protection for the Philippines.”
GC Securities and Swiss Re acted as joint structuring agents, joint bookrunners and joint managers, while reinsurance firm Munich Re was a joint structuring agent, placement agent and joint manager. AIR Worldwide acted as the risk modeler and will play the role of calculation agent for the cat bonds term.
“GC Securities / Guy Carpenter congratulate the World Bank and Government of Philippines on this landmark and successful transaction as the first CAT bond with exposure to natural perils affecting the Republic of the Philippines as well as the first CAT bond listed on the Singapore Exchange. We hope that this pioneering transaction provides a springboard for greater use of insurance linked securities to close the protection gap in Asia and promote sustainable economic development in one of the most dynamic regions of the world,” commented David Priebe, Chairman, Guy Carpenter & Company, LLC.
“Swiss Re is proud to play a small part in the bigger picture of making Asia – in particular the Philippines – a more resilient place to live, grow and thrive. By leveraging market risk appetite, the Government of Philippines is boosting its resilience to the natural risks it faces. We’re privileged to have this opportunity to support this first-of-its-kind transaction in the Asia Pacific region,” Vincent Eck, Managing Director, Public Sector Solutions, Swiss Re Asia added.
“We at Munich Re are proud of being part of the development and issuance of the catastrophe bond for the Philippines. We very much appreciate cooperating with the World Bank and support actively World Bank’s growing engagement in issuing catastrophe bonds and parametric risk transfer solutions insuring low- and middle-income countries against catastrophe risk,” explained Thomas Blunck, Member of the Board of Management, Munich Re.
The World Bank has provided some statistics on the distribution of the Philippines catastrophe bond notes to the insurance-linked securities (ILS) investor base, both in terms of the geographic spread of the risk and the types of investors supporting the transaction.
In terms of geography, the lions share of the investors backing the transaction were in Europe, while asset management firms with catastrophe bond funds and cat bonds in their multi-asset class strategies made up half of the investor base, with dedicated ILS funds accounting for 29%.