The World Bank has issued (perhaps directly sponsored) its first catastrophe bond, according to reports, in a $30m deal designed to provide hurricane and earthquake reinsurance protection to the Caribbean Catastrophe Risk Insurance Facility (CCRIF).
The FT reports that the World Bank has sold/issued its first catastrophe bond to provide a source of reinsurance protection to the CCRIF parametric risk pooling initiative.
The cat bond issued by the World Bank is said to provide $30m of limit to cover the 16 Caribbean members of the CCRIF against losses from hurricanes and earthquakes over a three-year risk period.
The World Bank is standing between the investors in the cat bond, which the FT reports to be specialist insurance-linked securities funds, catastrophe funds, hedge funds and other investment companies.
Madelyn Antoncic, World Bank treasurer, told the FT; “This is the first time the World Bank has issued a catastrophe bond and the first time it is doing a non-AAA bond.”
Antoncic told the FT that the cat bond priced very well and that by issuing a cat bond to the capital markets, rather than providing catastrophe risk protection in swap or reinsurance form as the World Bank has done in the past, greater transparency and better pricing could be achieved.
In the past a $30m top layer of the CCRIF’s catastrophe reinsurance program had been transferred to the capital markets in a catastrophe swap form, it would appear that this cat bond is to replace that layer.
The way the CCRIF provides its protection to its members means that this cat bond will contain some risk of storm surge, as well as wind from tropical cyclones, as well as the earthquake risk. The CCRIF takes parameters of an event and applies them to member government exposure information to determine a loss estimate.
The CCRIF had said it was looking at catastrophe bonds and other forms of collateralized reinsurance protection as part of its risk transfer program a few months ago. This World Bank cat bond deal is clearly the results of that effort, providing the facility with keenly priced, multi-year protection for the two key perils it protects its members from, hurricanes and earthquakes.
The CCRIF facility provides its coverage to members on a parametric basis, but at this stage we do not know whether this cat bond was parametric in nature or perhaps simply based on the indemnity losses suffered by the facility. The CCRIF also covers losses from
More details on the transaction are not currently available, including the issuer or special purpose vehicle name, but we have reached out to a number of sources to try to fill in some of the gaps about this World Bank – CCRIF cat bond. Please do contact us with any further details.
The World Bank has of course facilitated the issuance of two catastrophe bonds to provide insurance protection to Mexico before, the MultiCat Mexico Ltd. (Series 2012-1) and MultiCat Mexico 2009 Ltd. cat bonds. In both of those transactions, Swiss Re stood between the risk and the ultimate cedants, to transform and sponsor the cat bonds with the World Bank facilitating the MultiCat program.
In the case of this CCRIF cat bond it seems that the World Bank has itself acted as a sponsor of sorts, likely using a special purpose vehicle to package the risk and issue it to the capital markets in note form. So a first for the World Bank to more directly get involved in catastrophe bond issuance.
We will update you further should more details emerge and if sufficient details on this World Bank cat bond can be found we will add it to our catastrophe bond Deal Directory.
Update: A recent CCRIF presentation discusses the facilities exploration of a possible cat bond issuance and says that it would seek to use a trigger matched to the parametric triggers of the underlying policies. That suggests that this World Bank – CCRIF cat bond may use a parametric trigger as well, again we’ll confirm if we can get further details.
Update 2: We now have more information on the issuance, the trigger and structure and some of the parties involved, which we’ve covered in this article. We’ve also added the transaction to the Deal Directory as World Bank – CCRIF 2014-1.