The World Bank (International Bank for Reconstruction and Development, or IBRD) has priced a catastrophe bond that will provide the government of Jamaica with up to US $ 185 million in financial protection against losses from named storms. during three Atlantic tropical cyclone seasons ending in December 2023.
The government of Jamaica is the first government in the Caribbean region and the first in a small island state to independently sponsor a catastrophe bond, also known as a cat bond. Jamaica was one of sixteen Caribbean Catastrophe Risk Insurance Mechanism countries that benefited from IBRD’s very first bond in 2014.
The bonds were issued under the IBRD’s “capital at risk” note program, which can be used to transfer risks associated with natural disasters and other risks from developing countries to capital markets. Payments to Jamaica will be triggered when a named storm event meets the parametric criteria for location and severity set out in the terms of the bond. The transaction includes an innovative reporting function allowing rapid calculation of payments, in the weeks following a qualified named storm. It is also the first cat bond to use an innovative cat-in-a grid parametric trigger design for tropical cyclone risk.
Jingdong Hua, Vice President and Treasurer of the World Bank, said, “We are delighted to be able to support this transaction and to bring together so many different partners, all committed to building Jamaica’s resilience in the face of tropical cyclones. We especially thank the capital market investors for their support and participation in this important mission.
Carlos Felipe Jaramillo, Vice President for Latin America and the Caribbean, World Bank, said: “The Caribbean region is vulnerable to climate-related events and we know how important it is to protect well-being. of the inhabitants of the region. We are proud to help Jamaica reduce the risks associated with these kinds of events. “
Dr the Hon. Nigel Clarke, Minister of Finance and Civil Service, Government of Jamaica, said: “The Government of Jamaica has strategically prioritized disaster risk financing to mitigate the negative fiscal impact of tropical cyclones and natural disasters, thereby strengthening Jamaica’s economic resilience. We are pleased with the successful placement of this Catastrophe Bond, which adds an indispensable layer of catastrophe risk financing that complements our multi-layered approach. In this transaction, Jamaica benefited from the vast technical resources of the World Bank and the strength of its balance sheet. We are also grateful to our bilateral partners, the governments of the United Kingdom and Germany, through the Global Risk Finance Facility, and to the United States through the United States Agency. for international development who provided financial support to the transaction.
Jamaica is highly exposed to tropical cyclones which pose a significant threat to Jamaica’s macroeconomic outlook. The Government of Jamaica has taken a proactive approach to building financial, physical and social resilience to disasters, and is supported by the World Bank through various financing instruments and technical assistance.
The cat bond complements Jamaica’s portfolio of disaster risk financing instruments and builds on the extensive engagement of the World Bank, including the preparation of disaster risk models and analyzes for Jamaica and the Jamaican government adopting a disaster risk financing strategy.
The cat bond transaction received financial support from the United States through the United States Agency for International Development, the United Kingdom-funded World Bank Disaster Protection Program, as well as Global Risk Financing Facility (GRiF). GRiF, implemented by the Global Facility for Disaster Reduction and Recovery (GFDRR) and the World Bank’s Disaster Risk Finance and Insurance Program, is supported by Germany and the United Kingdom to provide grants aimed at strengthening the financial resilience of vulnerable countries by establishing or in pre-established risk financing instruments.
Dr Heike Henn, Director of Climate and Energy, Sustainable Urban Development, Environment, German Federal Ministry for Economic Cooperation and Development, said: “We are happy to have contributed to this milestone. important in building Jamaica’s economic resilience to climate risks. Our support is an integral part of our efforts within the InsuResilience Global Partnership, whose vision is to strengthen the resilience of developing countries and protect the lives and livelihoods of poor and vulnerable people from the impacts of climate risks and climate change. disaster. the Partnership brings together governments, civil society, international organizations, the private sector and academia. Only together can we meet the challenges of climate change.
Asif Ahmad, British High Commissioner to Jamaica, said: “The UK stands in solidarity with countries on the front lines of climate change, especially small island states like Jamaica which are particularly vulnerable. This is why we have used our Presidencies of the G7 and the COP this year to advance the use of innovative finance for resilience. We congratulate Jamaica on this new catastrophe bond, which will ensure that funds are available quickly for a rapid response and recovery from hurricanes. The UK is delighted to have supported this work through the Global Risk Finance Facility, alongside our G7 partners Germany and the US, as well as the World Bank. “
Jason Fraser, Jamaica Representative, United States Agency for International Development, said, “This obligation solidifies the commitment of USAID and the United States Government to support innovative disaster financing mechanisms that provide financial reserves following natural disasters. enable Jamaica to fund its own recovery from natural disasters and reduce recovery costs. This agreement is an important milestone in Jamaica’s long-standing partnership with the United States and our growing engagement with the Caribbean region as neighbor, partner and friend.
Aon Securities and Swiss Re Capital Markets are joint structuring agents and joint bookkeepers for the transaction. AIR Worldwide is the modeler and risk calculation agent.
Paul Schultz, CEO of AON Securities, said: “Aon Securities is delighted to partner with the World Bank to help the Government of Jamaica bring this landmark transaction to the capital markets. We recognize that natural disasters can have a significant impact on the country, and we are delighted to help establish this protection to help Jamaica build a stronger social safety net and a more resilient economy for its citizens. “
Jean-Louis Monnier, Managing Director and Head of Retro & ILS Structuring, Swiss Re Capital Markets, said: “Swiss Re Capital Markets is proud to have partnered with the World Bank and the Government of Jamaica to carry out the the country’s first catastrophe bond issue. on the market. This groundbreaking transaction includes innovative payment mechanisms that allow Jamaica to access disaster relief funds more quickly following a trigger event. As such, she embodies Swiss Re’s mission to make the world more resilient.