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Bermudian-based investors take part in Jamaican cat bond

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Montego Bay, Jamaica (File photograph)

Investors based in Bermuda have contributed to a World Bank catastrophe bond that finances $150 million of insurance coverage for the Government of Jamaica against named storm events.

This is the renewal of the World Bank’s 2021 cat bond for the Caribbean island, the first small island state to independently sponsor a cat bond.

Forty-three per cent of investors in the bond are from North America, while 40 per cent are from Europe, 14 per cent are from Bermuda and 3 per cent are from Asia/Australia, the World Bank said.

ILS funds make up 66 per cent of investors, while asset managers make up 33 per cent and insurers and reinsurers make up 1 per cent.

The World Bank said Jamaica was exposed to tropical cyclone events that threatened not only lives and livelihoods, but also the country’s economic outlook.

For Jamaica, the cat bond forms part of a multi-layered disaster risk financing strategy reducing the fiscal burden of natural disasters, while allowing the government to respond swiftly.

The cat bonds were issued under a “capital at risk” notes programme, which can be used to transfer risks related to natural disasters and other risks from developing countries to the capital markets.

The bonds’ parametric structure makes funds readily available to finance insurance payouts to Jamaica if a severe tropical cyclone event occurs.

Payouts to Jamaica will be triggered when a named storm event meets the criteria for location and severity set forth in the bond terms.

The cat bond attracted 15 global investors, providing the funding for catastrophe insurance to Jamaica for four hurricane seasons.

Nigel Clarke, the country’s Minister of Finance and the Public Service, said: “Jamaica is pleased to have sponsored the second catastrophe bond in the international capital markets protecting Jamaica against natural disasters with the much-appreciated support and assistance of the World Bank.

“Consistent with our National Natural Disaster Risk Financing policy, we seek to ensure the availability of fiscal resources to enable an immediate response to emergency expenditures that could arise from a direct hit by a high-intensity hurricane.”

Dr Clarke added: “This catastrophe bond covers hurricane seasons 2024, 2025, 2026 and 2027 and complements other disaster-risk financing instruments that we have in place. We express our gratitude for the Hong Kong Insurance Authority who supported the transaction financially.”

Jorge Familiar, vice-president and treasurer of the World Bank, said: “We are proud to have partnered with Jamaica for the second time on a cat bond transaction.

“Over recent years, Jamaica has done a very impressive job with its fiscal consolidation. Through its comprehensive disaster risk strategy, of which this cat bond renewal plays a critical part, Jamaica is proactively protecting its fiscal position against risk in a manner that could become a model for other countries vulnerable to natural catastrophe risk.”

Lilia Burunciuc, country director for Caribbean Countries, World Bank, added: “The need for the Caribbean to prepare for disaster impacts cannot be overstated, as it is one of the most vulnerable regions globally.

“Important to this process is having available resources and the World Bank is pleased to support Jamaica’s catastrophe bond, which will help the country respond and rebuild quickly in the event of an impact.”

Aon Securities and Swiss Re Capital Markets were the joint structuring agents and joint book runners for the transaction. Air Worldwide is the risk modeller and calculation agent.

The cat bond will be listed on the Hong Kong Exchange, which is the second time the World Bank has listed a cat bond in Hong Kong.

Nigel Clarke, Minister of Finance and the Public Service, Government of Jamaica (File photograph)
Jorge Familiar, vice president and treasurer of the World Bank (File photograph)
Lilia Burunciuc, country director for Caribbean Countries, World Bank (File photograph)

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Published May 21, 2024 at 8:00 am (Updated May 22, 2024 at 8:08 am)

Bermudian-based investors take part in Jamaican cat bond

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