World Bank’s cat bond for the Philippines not upsized, set at $225m

The World Bank supported catastrophe bond that is in the market to secure risk transfer and disaster insurance protection for the Philippines has not upsized, with the IBRD CAR 123-124 transaction still aiming for $225 million.

At the same time, the catastrophe bond tranches have been moved to use the International Bank for Reconstruction and Development (IBRD) Capital-At-Risk Notes program identifiers 123 and 124, instead of the previously reported 121 and 122, we’re told.

This cat bond transaction for the Philippines was launched to the market over a fortnight ago, as we reported at the time, seeking at least $225 million of disaster insurance protection for the country through the latest World Bank supported issuance.

It’s seen as a significant step and a milestone for the World Bank in rolling out disaster risk transfer, as a Philippines catastrophe bond had been in the offing 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.

The transaction seeks to secure the Philippines a source of both earthquake and tropical cyclone insurance coverage, on a modelled loss trigger basis across a multi-year term.

The issuance has come to market under the World Bank’s IBRD Capital-At-Risk Notes program, as other recent World Bank issued cat bonds have.

Two classes of notes will be issued and sold to investors to collateralize underlying catastrophe risk swap agreements, that provide the per-occurrence risk transfer and reinsurance protection to support the Republic of the Philippines needs, with one of the classes of notes covering each of the two perils.

We now understand that this cat bond issuance had been pitched to investors at between $225 million and $300 million in size as bookrunners gauged appetite for the deal, but we’re told it will now likely settle at the lower-end of $225 million.

The first tranche of IBRD CAR 123 Class A notes, that will be exposed to Philippine earthquake risks, look set to be $75 million in size and with their initial expected loss of 3%, continue to be offered to ILS investors with a risk margin (spread) of between 5% and 5.75%.

The second tranche of IBRD CAR 124 Class B notes that will be exposed to Philippine tropical cyclone risk, are set for $150 million in size and with their expected loss of 3%, the notes are offered to investors with a risk margin of between 5.25% and 6%.

Of course, there is still a small chance some late demand from investors helps this deal increase in size by the time books close.

But either way, a $225 million injection of efficient insurance and reinsurance capital from third-party investors will provide a welcome disaster risk transfer buffer for the Philippines and the importance of this landmark cat bond deal should not be understated.

As the World Bank gets more countries onboard with catastrophe bonds for disaster risk financing the likelihood others follow suit increases and the potential for third-party reinsurance capital to expand globally in terms of reach increases.

We understand that order books are closing later today, meaning pricing will likely be fixed tomorrow.

We’ll update you once any updates are available on the eventual size and pricing for this first catastrophe bond for the Philippines.

You can read all about this IBRD CAR 123-124 issuance in our comprehensive catastrophe bond Deal Directory.