The World Bank recently priced a catastrophe (cat) bond to provide US$150 million in insurance coverage for the Government of Jamaica against named storm events. This renewal of the 2021 cat bond for Jamaica marks the second time the country has independently sponsored such a bond.
Jamaica faces significant risks from tropical cyclone events that can have devastating impacts on lives, livelihoods, and the economy. The cat bond is a key component of Jamaica’s disaster risk financing strategy, helping to reduce the financial burden of natural disasters and enabling the government to respond quickly in times of crisis.
Issued under the IBRD’s “capital at risk” notes program, the cat bond allows for the transfer of risks related to natural disasters from developing countries to the capital markets. The parametric structure of the bonds ensures that funds are readily available to finance insurance payouts to Jamaica in the event of a severe tropical cyclone meeting specific criteria outlined in the bond terms. The bond attracted 15 global investors, providing coverage for four hurricane seasons.
Dr. Nigel Clarke, Minister of Finance and the Public Service for Jamaica, expressed gratitude for the support of the World Bank in securing this catastrophe bond. The bond covers hurricane seasons from 2024 to 2027 and complements other disaster risk financing instruments in place in Jamaica.
The World Bank, Aon Securities, and Swiss Re Capital Markets were instrumental in structuring and executing the bond transaction. The bond will be listed on the Hong Kong Exchange, marking the second time the World Bank has listed a cat bond in Hong Kong.
Investor distribution for the catastrophe bonds was diverse, with a significant percentage coming from Europe and North America. The bond’s terms and conditions outline key details such as covered perils, trigger type, trade date, settlement date, and maturity date.
It is important to note that the net proceeds from the bonds are not earmarked for any specific projects or programs. Investing in these bonds carries a high degree of risk, and potential investors must meet specific criteria to participate in the offering. The bonds will only be offered to qualified institutional buyers in permitted jurisdictions.
Overall, the catastrophe bond issued for Jamaica represents a proactive step in building resilience against natural disasters and ensuring swift financial support in times of need.