The World Bank (WB) has approved a $24 million loan transaction that enables Honduras and Nicaragua to enter into the Caribbean Catastrophe Risk Insurance Facility (CCRIF).
The news comes days after the World Bank and the CCRIF completed their first ever cat bond, a $30 million deal that provides hurricane and earthquake capacity for the CCRIF, who can then provide cover to the fund’s member states, while also acting as a way for the CCRIF to offload some of its members risks. And now the CCRIF is looking to further diversify its portfolio and offer liquidity at more affordable rates with the inclusion of two Latin American countries, a possibility reported by Artemis in March 2014.
The $24 million consists of a $12 million loan for Honduras and Nicaragua, which covers their entrance fee and seven years of premiums for Honduras and four years worth for Nicaragua, funded by the International Development Association (IDA) – WB’s fund for the world’s poorest countries. The terms of the loan state that Honduras will have a 25-year maturity period and a 5-year grace period, while Nicaragua receives a 40-year maturity period and a 10-year grace period.
Nicaragua and Honduras are extremely vulnerable to the losses associated with hurricanes, earthquakes, tropical storms, floods, landslides and heavy rainfall, with annual economic losses ensued by these perils equaling 2.8% of GDP in Honduras, and 1.8% of GDP in Nicaragua – from 1990-2012. World Bank Interim Director for Central America, Maryanne Sharp, commented; “Large-scale disasters caused by adverse natural phenomena can endanger government efforts to reduce poverty and promote shared prosperity, while threatening to undo the development gains made to date.”
The CCRIF was set-up in 2007 and since its creation has disbursed roughly $32 million to help with natural disaster related emergencies. Owing to the fund’s high number of member states, which has now increased by two, and capital contributed by donor countries, the CCRIF is able to offer more favorable insurance, providing members with as much as a 50% saving were they to take out insurance individually within the international markets.
The CCRIF is vital for the resilience of its member states post-disaster and, it’s believed that other Central American countries are beginning to look at accessing the fund, following the inclusion of Honduras and Nicaragua.