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World Bank leadership put catastrophe bonds back in the spotlight


While the World Bank has been a key driving force in the catastrophe bond market for many years, of late its senior leadership has been relatively quiet about the use of cat bonds as a key disaster risk financing and risk transfer option for its sovereign client-base.

world-bank-logoSo it’s pleasing to note that catastrophe bonds have had a specific mention within recent speeches by the CFO and by the President of the World Bank, with each putting cat bonds in the spotlight as an effective tool that remains available to the sovereign actors the Bank works with.

Over the last couple of years mentions of disaster risk financing, disaster risk transfer and catastrophe bonds have become increasingly infrequent, especially from the Bank’s top leadership team.

One reason could be the negative press that was received around the pandemic cat bond and its triggering due to COVID-19, even though this was actually aligned with the terms of the transaction that had always been in place.

But now, it seems cat bonds are firmly back on the agenda, with two mentions in just one week.

First, the President of the World Bank, David Malpass, who in explaining that the Bank’s financing to developing countries has “expanded dramatically” in recent years, said that this was especially true for climate-related finance.

Continuing to say, “We are growing our portfolio of Catastrophe Deferred Drawdown Options, or Cat DDOs, which provide immediate liquidity in case of disasters.

“We also issue catastrophe bonds that provide coverage against various events and can provide a payout within weeks of a hurricane.”

This is the first mention of cat bonds in a speech by Malpass in a relatively long period of time, so it’s encouraging to see them mentioned as an option still on the table for its clients.

World Bank Managing Director and Chief Financial Officer, Anshula Kant, had much more to say on cat bonds in a recent interview.

In an article written by the World Bank CFO, Kant explains that, “On disaster risk management, we are using our expertise and triple-A rating to issue catastrophe bonds, which are structured bonds that provide countries a tool to transfer disaster risk to the capital markets.

“Earthquakes, cyclones and hurricanes not only impact lives and essential infrastructure, but also require governments to be prepared to deliver funding quickly in times of need.”

She went on to highlight the success of the World Bank’s cat bond program, saying that, “In the past two decades, the World Bank has transferred USD 5 billion of catastrophe risk across more than 20 countries to the capital markets.”

Adding, “Cat bonds are highly scalable and could become even more important in the future.”

These are positive comments from one of the most senior leaders at the World Bank, with Kant’s final words suggesting the Bank sees a growing role for catastrophe bonds in its work.

Which is encouraging for the overall catastrophe bond market and the investor base as well, as the World Bank’s cat bond issues are always very welcome for those seeking diversification, or something a little different for their insurance-linked securities (ILS) portfolios.

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