The Board of the World Bank has approved a new $400 million program that aims to boost Morocco’s resilience against climate, disaster, and cyber risks, with catastrophe bonds and other forms of insurance risk transfer including parametric triggers mooted as part of the program outcomes.
Part of the program’s focus is on developing cyber and disaster insurance instruments to expand risk transfer capacity for Morocco.
Over a five year project term, the goal is to mobilise up to $400 million in private capital and also put in place $1 billion in pre-arranged disaster financing, plus extend cyber risk coverage to at least 20 financial entities in Morocco.
Launched alongside a $250 million Morocco Digital Transformation Acceleration Program, the use of instruments such as insurance-linked securities is now on the table for the country.
Morocco has already had parametric disaster and climate insurance arrangements in-force for a number of years, whose benefits have been realised as its government received a $275 million payout from its parametric earthquake insurance policy after the devastating earthquake that occurred in 2023.
The $400m Morocco Climate & Risk Finance Program will explore a wide-range of risk transfer instruments and structures, to find the optimal solutions to provide the necessary protection, while making use of private capital to support risk transfer limits required.
The project will aim to “design de-risking instruments to crowd in private capital,” and “refine the public-private disaster risk financing architecture,” while also working to “deepen insurance solutions for natural catastrophes and cyber risks.”
Part of this will also involve Morocco updating its disaster risk financing strategy and amend laws that govern the catastrophe coverage, to clarify roles and improve protection for beneficiaries.
In addition, also in scope under the program, is building-up the capacity and increasing value for money associated with Morocco’s Solidarity Fund against Catastrophic Events (Fonds de Solidarité contre les Événements Catastrophiques, FSEC).
This is expected to be achieved “through diversified pre-arranged risk transfer such as reinsurance and potential catastrophe bonds,” the World Bank explained.
Refining the approach to risk transfer means, “developing more sophisticated product structures that incorporate cutting-edge risk modeling and structuring techniques, drawing on lessons learned to date in Morocco, and potentially open new market opportunities; including through a catastrophe bond. This approach will strengthen FSEC’s negotiating position, improve fitness for purpose of risk transfer products to meet needs after severe disasters, and increase the stability and sustainability of its risk financing. Together, these measures will enable timely, transparent, and scalable financial response to risks, especially benefitting groups with low private insurance coverage, such as women,” the World Bank further stated.
Commenting on these new phases of work in Morocco, Ahmadou Moustapha Ndiaye, Division Director for the Maghreb and Malta at the World Bank said, “These two new programs address critical pillars of Morocco’s transformation priorities, a digitally empowered economy, a vibrant innovation ecosystem, and a financially resilient nation equipped to manage the climate, disaster, and cyber risks of a rapidly changing world.
“Together, these programs will support an integrated architecture for Morocco’s next decade — one that mobilizes private capital, creates jobs for youth and women, and advances the country’s climate commitments.”
The capital markets would almost certainly support a first catastrophe bond for Morocco, if that ends up being one of the deliverables of this new five-year program.
Investor appetite for well-modelled and structured insurance-linked securities extends to most regions of the world now and the efficiencies of private capital can help reduce the burden of risk transfer for other funding sources, as well as extend capacity support in times of need.
