Philippines secures two Singapore-listed cat bonds

November 26 2019 by Yvonne Lau

The Philippines will be financially protected against natural catastrophe losses up to US$225 million, with the issuance of two tranches of catastrophe-linked (cat) bonds from the World Bank’s International Bank for Reconstruction and Development.

The coverage will insure up to US$75 million from earthquake losses and up to US$150 million from tropical cyclone losses, for a period of three years; payouts are triggered under predefined criteria. The cat bonds were listed on the Singapore Stock Exchange (SGX) on November 25 – the first-ever listing of cat bonds on the SGX.

In a country highly vulnerable to disasters, natural catastrophes have cost the nation US$7 billion since 2011; and have reiterated the need to strengthen financial resilience and build comprehensive financial protection. Its largest loss came in 2013, when Super Typhoon Yolanda (known internationally as Haiyan) resulted in a death toll of 6,300 and US$12.9 billion in damages – 4.7% of the country’s GDP.

Rosalia V. de Leon, national treasurer of the Philippines, commented: “The World Bank cat bond is a vital building block to our long-term disaster risk and insurance strategy. This instrument addresses the financing gap for immediate post-disaster needs for extremely high-risk events.”

Joint structuring agents, joint bookrunners and joint managers of the agreement were Swiss Re and GS Securities, a division of MMC Securities; while Munich Re acted as a joint structuring agent, placement agent and joint manager. AIR Worldwide served as the risk modeler and calculation agent.

David Priebe, chairman of Guy Carpenter, commented: “We hope that this pioneering transaction provides a springboard for greater use of insurance linked securities to close the protection gap in Asia.”

The agreement is the first-of-its-kind in the region. “The World Bank cat bonds for the Philippines are the first to be sponsored by the government of an Asian country,” noted Jingdong Hua, vice president and treasurer of the World Bank.

The Philippines first started exploring plans earlier in the decade and the announcement follows Indonesia agreeing US$770 million of disaster protection with 56 re/insurers for over 1,000 public assets.