World Bank catastrophe bond provides Jamaica US$185 million in storm protection

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WASHINGTON, USA – 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.

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.”

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.

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.”

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 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.”

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