The World Bank (International Bank for Reconstruction and Development, or IBRD) priced a catastrophe bond that will provide the Government of Jamaica with financial protection of up to US $185 million against losses from named storms for three Atlantic tropical cyclone seasons ending in December 2023.
The government of Jamaica is the first government in the Caribbean region, and the first of any small island state, to independently sponsor a catastrophe bond, also known as a cat bond. Jamaica was one of the sixteen countries in the Caribbean Catastrophe Risk Insurance Facility that benefitted from IBRD’s first ever cat bond in 2014.
The bonds were issued under IBRD’s “capital at risk” notes program, which can be used to transfer risks related to natural disasters and other risks from developing countries to the capital markets. Payouts to Jamaica will be triggered when a named storm event meets the parametric criteria for location and severity set forth in the bond terms. The transaction includes an innovative reporting feature resulting in a quick payout calculation, within weeks of a qualifying 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, World Bank, said, “We are pleased to be able to support this transaction and bring together so many different partners all committed to strengthening Jamaica’s resilience to tropical cyclones. We especially thank the capital market investors for their support and participating in this important mission.”
Carlos Felipe Jaramillo, Vice President for Latin America and Caribbean, World Bank, said, “The Caribbean region is vulnerable to climate related events and we know how important it is to protect the welfare of the people in the region. We are proud to support Jamaica in reducing risks associated with these kinds of events.”
Dr. The Hon. Nigel Clarke, Minister of Finance and the Public Service, Government of Jamaica, said, “The Government of Jamaica has strategically prioritized Disaster Risk Financing to mitigate the adverse 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 disaster risk financing that complements our multi-layered approach. In this transaction, Jamaica benefited from the vast technical resources of the World Bank, and from 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 Financing Facility, and to the United States through the United States Agency of International Development who provided financial support for the transaction.”
Jamaica is highly exposed to tropical cyclone events which pose a significant threat to Jamaica’s macroeconomic outlook. The Government of Jamaica has taken a proactive approach to developing financial, physical and social resilience against disasters, and is being 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 intensive World Bank engagement, including the preparation of catastrophe risk models and analytics for Jamaica and the adoption of a Disaster Risk Finance Strategy by the Government of Jamaica.
The cat bond transaction received financial support from the Unites States through the United States Agency for International Development, the World Bank’s Disaster Protection Program funded by the United Kingdom, as well as the Global Risk Financing Facility (GRiF). The GRiF, implemented by the Global Facility for Disaster Reduction and Recovery (GFDRR) and the World Bank’s Disaster Risk Financing and Insurance Program is supported by Germany and the United Kingdom to provide grants to strengthen the financial resilience of vulnerable countries through establishing or scaling-up pre-arranged risk financing instruments.
Dr. Heike Henn, Director Climate and Energy, Sustainable Urban Development, Environment, German Federal Ministry for Economic Cooperation and Development, said,”We are pleased to have contributed to this important milestone in strengthening 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 against the impacts of climate and disaster risks. It also shows how important it is that the Partnership brings together governments, civil society, international organizations, the private sector, and academia. Only together we will be able to meet the challenges of climate change.”
Asif Ahmad, the British High Commissioner to Jamaica, said, “The United Kingdom stands in solidarity with countries on the frontline of climate change, especially Small Island States like Jamaica which are particularly vulnerable. That is why we have used our Presidencies of the G7 and COP this year to advance the use of innovative financing for resilience. We congratulate Jamaica on this new catastrophe bond, which will ensure that funds are available rapidly for early response and recovery after hurricanes. The UK is delighted to have supported this work through the Global Risk Financing Facility, alongside our G7 partners Germany and the United States, as well as the World Bank.”
Jason Fraser, Jamaica Country Representative, United States Agency for International Development, said, “This bond solidifies USAID’s and the United States Government commitment to support innovative disaster financing mechanisms that provide financial reserves in the wake of natural disasters. In the end, this will enable Jamaica to finance its own recovery from natural disasters and reduce recovery costs. This agreement is an important step in the longstanding partnership between Jamaica and the United States and our growing engagement with the Caribbean region as our neighbor, partner and friend.”
Aon Securities and Swiss Re Capital Markets are joint structuring agents and joint bookrunners for the transaction. AIR Worldwide is the risk modeler and calculation agent.
Paul Schultz, CEO, AON Securities, said, “Aon Securities is pleased to partner with the World Bank to help the Government of Jamaica bring this landmark transaction to the capital markets. We recognize the potential for natural disaster events to have a significant impact on the country, and we are excited 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 successfully bring the nation’s first catastrophe bond issuance to market. This ground-breaking transaction features innovative payout mechanics which provide Jamaica with faster access to disaster relief funds following a triggering event. As such, it embodies Swiss Re’s mission to make the world more resilient.”
World Bank Catastrophe Bonds Investor Distribution
By Geography | By Investor Type | ||
Europe | 60% | ILS Fund | 66% |
North America | 24% | Insurer / Reinsurer | 17% |
Bermuda | 15% | Asset Management | 14% |
Asia | 1% | Pension Fund | 3% |
Summary Terms and Conditions
Type of Note | CAR 130 |
Issuer | World Bank (International Bank for Reconstruction and Development, IBRD) |
Size (Aggregate Nominal Amount) | US $185 million |
Covered Perils | Named Storm |
Trigger Type | Parametric, Per Occurrence |
Trade Date | July 19, 2021 |
Settlement Date | July 23, 2021 |
Scheduled Maturity Date | December 29, 2023 |
Issue Price | 100% |
Bond Coupon (per annum) | Compounded SOFR + Funding Margin + Risk Margin |
Funding Margin | 0.05% per annum |
Risk Margin | 4.40% per annum |
Coupon Payment Dates | Monthly |
Redemption Amount | The Outstanding Nominal Amount reduced by any Principal Reductions and/or Partial Repayments |
Disclaimers
This press release is not an offer for sale of securities of the International Bank for Reconstruction and Development (“IBRD”), also known in the capital markets as “World Bank”. Any offering of World Bank bonds described herein will take place solely on the basis of the relevant offering documentation including, but not limited to, the Prospectus, the Prospectus Supplement, the Final Terms and any related legal documentation. Investing in the bonds described herein is speculative and involves a high degree of risk including the risk of a total loss of principal amount of the applicable Class. The bonds will be offered and sold, and may be reoffered and sold, only to investors who (i) are “qualified institutional buyers” within the meaning of Rule 144A under the United States Securities Act of 1933, as amended, and (ii) are residents of and purchasing in, and will hold the bonds in, a permitted U.S. jurisdiction or a permitted non-U.S. jurisdiction (and meet the other requirements set forth under “Notice to Investors” in the Prospectus Supplement). The bonds will not transferable except in accordance with the restrictions described under “Notice to Investors” in the Prospectus Supplement.
Net proceeds of the bonds described herein are not committed or earmarked for lending to, or financing of, any particular projects or programs, and returns on the bonds described herein are not linked to the performance of any particular project or program.