The efforts of the World Bank around disaster risk financing for its members continues to be a real benefit, and while the organisation can and will do more, this isn’t about being the dominant force in the market, according to Michael Bennett, Head of Derivatives & Structured Finance, World Bank Treasury.
During last month’s annual ILS conference in New York City, held virtually for the first time owing to restrictions, Artemis spoke with Bennett about the World Bank’s use of reinsurance and insurance-linked securities (ILS) structures for member governments, and how this might evolve in the future.
So far, the World Bank has transferred some $4.5 billion of risk to the markets, of which the large majority (65%) has been via ILS structures; showing how beneficial capital markets-backed protection has been for both the organisation and its members.
But despite the World Bank having “only scratched the surface” on what it can do with governments looking to transfer some of their disaster risk, Bennett explained that it’s fully supportive of members going directly to market.
“It’s certainly not our goal to dominate the sovereign side of the market. And, we think we have a very good mousetrap in this area, in terms of our cat bond programme, and even our reinsurance ability is a significant benefit we give to member governments.
“But, certainly, we would fully support governments going directly to the market. We’d love to see, as we’ve said, just more universal application of disaster risk hedging,” he said.
According to Bennett, a really great thing to see in the future would be for governments to go directly to the ILS market to secure a certain level of natural disaster coverage through their own sovereign bond issuances.
“If they could get that protection by embedding into sovereign bonds provisions that they get an interest holiday for a certain period of time if an event occurs, that would be a great solution also.
“Now, how realistic that is, I don’t know. Because right now, of course, sovereign bond investors and ILS investors are different characters and the Venn diagram where they meet is probably very tiny. But solutions like that, where natural disaster protection is more thoroughly embedded into other financial products, I think would be a great thing to see in the future,” said Bennett.
The session, which was broadcast first to event registrants on Wednesday 10th Feb, can now be viewed below: