The World Bank has said that it expects to mobilise a broad package of financial support to aid Jamaica’s recovery from major hurricane Melissa and the development organisation has now stated that a payout of the country’s catastrophe bond is deemed likely.
The World Bank has worked to assist countries in accessing disaster risk insurance financing from the capital markets for well over a decade now and it plays a critical role across more than just cat bonds, having developed and led numerous projects for disaster risk insurance roll-out around the globe.
With the IBRD CAR Jamaica 2024 catastrophe bond, the World Bank helped the Caribbean island nation through the planning, design and development of the catastrophe bond and its trigger, assisted in building the necessary investor relationships to get the deal off the ground, as well as providing services through its issuance.
The World Bank works with countries across numerous development financing needs, so has continuous contact and relationships with them which has proven to be key in getting sovereign sponsored catastrophe bonds to market.
In addition, the $150 million of cat bond notes were issued by the International Bank for Reconstruction and Development (IBRD), the institution and lending arm of the World Bank, under its global debt issuance facility and the Capital-At-Risk notes program.
Given how intrinsic the World Bank is to Jamaica’s catastrophe bond, it is especially notable that the Bank has opted to comment on the cat bond before an official determination of any payout has been made.
As we reported yesterday morning (Oct 31st), the calculation agent process for the cat bond had already been activated by the Government of Jamaica and an official had said the bond was “triggered” but that a payout could take some more time.
The calculation agent process typically takes a few days. It can be a few days for an event notice to be filed to start the calculation process, this occurred Wednesday or Thursday we believe, then a couple more days for the official data to be confirmed and available for calculation. Then, it can be up to five days between the final event parameters being made available and the event report being issued, but in this case it is expected the determination will be at the swifter end of the scale, sources suggest. The event report will explain the payout due. It can then be around five more days after the event report is issued that the principal is reduced for investors and the resulting payout can be transferred to the beneficiary, in this case Jamaica.
So the fact the World Bank has itself stated that it believes a payout is likely is notable, as it suggests confidence that a payout will be made. We don’t believe the Bank would comment on this otherwise.
The World Bank said in its statement (we’ve highlighted the cat bond relevant piece), “Our thoughts are with the people of Jamaica as they face the devastating impact of Hurricane Melissa. We are working closely with the Government of Jamaica and international partners, including the Inter-American Development Bank, to carry out a rapid post-disaster damage assessment and help guide immediate relief and recovery efforts.
“Jamaica has developed one of the most advanced and comprehensive disaster risk financing systems in the Caribbean, serving as a model for preparedness and resilience across the region. This strong foundation will be critical in ensuring a swift and coordinated response to the hurricane’s impacts.
“A broad package of World Bank Group assistance is ready to be mobilized — combining quick-disbursing emergency finance, likely payout in connection with a World Bank catastrophe bond, the redeployment of existing project funds, and targeted private-sector support through the International Finance Corporation, the WBG’s private sector arm. Our teams are also prepared to provide technical advice and implementation support to help Jamaica recover and rebuild stronger, ensuring that reconstruction efforts contribute to long-term resilience and sustainable growth.”
Finally, it’s worth noting that when a payout is made the funds that support Jamaica will be coming from across the globe, thanks to the broad distribution achieved through the initial issuance of the catastrophe bond.
At its issuance, there were 15 global investors that allocated to this cat bond for Jamaica, with the cat bond distribution split 66% specialist insurance-linked securities (ILS) funds, 1% insurance or reinsurance companies, and 33% asset managers.
Geographically, the Jamaica cat bond was distributed 43% to investors in the United States, 40% Europe, 14% Bermuda and 3% to Asia and Australia.
Over time since the initial settlement the notes will also have been traded in the secondary market, further diversifying the mix of investors in them.
With the World Bank’s help, this is how countries can benefit from broad institutional investor support for their disaster risk insurance needs, leveraging the cat bond structure to secure long-term financing that pays out after very severe events, such as Melissa.
Also read:
– Hurricane Melissa crosses Jamaica cat bond parametric boxes at 892mb, 100% payout likely.
– Hurricane Melissa losses in Jamaica likely to fall to reinsurers, says AM Best. BMS suggests $5bn+.
– Melissa insured impacts in the billions. Jamaica cat bond full loss most likely: Twelve Securis.
– Jamaica’s cat bond “doing what it was designed to do” – Lefferdink, Aon Securities.
– Hurricane Melissa estimated single-digit billion insured loss. Cat bond payout likely: Aon.
– Jamaica cat bond marked near zero after Melissa landfall. Calculation process underway.
