Washington, DC, November 25, 2019—The World Bank (International Bank for Reconstruction and Development or IBRD) has issued two tranches of catastrophe-linked bonds (CAT bonds) in order to provide the Republic of the Philippines with financial protection of up to US$75 million for losses from earthquakes and US$150 million against losses from tropical cyclones for three years.
The bonds were issued under IBRD’s “capital at risk” notes program, which can be used to transfer risks related to natural disasters and other risks from developing countries to the capital markets. Payouts will be triggered when an earthquake or tropical cyclone meets the predefined criteria under the bond terms.
The Philippines is among the most disaster-prone countries in the world. In 2013, Typhoon Yolanda (also known as Typhoon Haiyan) resulted in the loss of 6,300 lives and caused an estimated US$12.9 billion in damages, or about 4.7% of the country’s GDP.
“Many countries in Asia are highly vulnerable to natural disasters, which makes finding innovative, capital markets solutions a major priority to address the impact on their economies,” said Jingdong Hua, World Bank Vice President and Treasurer. “The World Bank CAT bonds for the Philippines are the first to be sponsored by the government of an Asian country and the result of a close and long-term partnership between the World Bank and the Philippines government.”
“The World Bank has been working with the Philippines government for the last eight years to help strengthen the country’s resilience against natural disasters,” said Mara K. Warwick, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand. “Through the intermediation of the World Bank, these CAT bonds allow the Philippines to transfer natural disaster risks to the capital markets while enabling the authorities to respond quickly to the needs of citizens when calamities strike. This once again demonstrates the Philippines’ capability to develop innovative financial solutions to mitigate impacts of extreme climate and weather-related events as well as major earthquakes.”
“The World Bank CAT bond is a vital building block to our long-term disaster risk and insurance strategy, which we have been steadily establishing since the aftermath of Typhoon Ketsana and Parma in 2009,” said Rosalia V. de Leon, National Treasurer of the Philippines. “This instrument addresses the financing gap for immediate post-disaster needs for extremely high-risk events. It complements the government’s existing disaster risk financing mechanisms designed to ensure comprehensive financial protection for the Philippines.”
GC Securities, a division of MMC Securities LLC, and Swiss Re were joint structuring agents, joint bookrunners and joint managers and Munich Re was a joint structuring agent, placement agent and joint manager. AIR Worldwide is the risk modeler and calculation agent.
“GC Securities / Guy Carpenter congratulate the World Bank and Government of Philippines on this landmark and successful transaction as the first CAT bond with exposure to natural perils affecting the Republic of the Philippines as well as the first CAT bond listed on the Singapore Exchange. We hope that this pioneering transaction provides a springboard for greater use of insurance linked securities to close the protection gap in Asia and promote sustainable economic development in one of the most dynamic regions of the world,” said David Priebe, Chairman, Guy Carpenter & Company, LLC.
“Swiss Re is proud to play a small part in the bigger picture of making Asia – in particular the Philippines – a more resilient place to live, grow and thrive. By leveraging market risk appetite, the Government of Philippines is boosting its resilience to the natural risks it faces. We're privileged to have this opportunity to support this first-of-its-kind transaction in the Asia Pacific region,” said Vincent Eck, Managing Director, Public Sector Solutions, Swiss Re Asia.
“We at Munich Re are proud of being part of the development and issuance of the catastrophe bond for the Philippines. We very much appreciate cooperating with the World Bank and support actively World Bank’s growing engagement in issuing catastrophe bonds and parametric risk transfer solutions insuring low- and middle-income countries against catastrophe risk,” said Thomas Blunck, Member of the Board of Management, Munich Re.
World Bank Catastrophe Bonds Investor Distribution
| Geographic distribution | Investor Type | ||
| Europe | 58% | Asset Management | 50% |
| North America | 25% | ILS FUnd | 29% |
| Asia | 13% | Insurer/Reinsurer | 13% |
| Bermuda | 4% | Pension Fund | 8% |
Summary Terms and Conditions
| Type of Note | CAR 123 -Class A | CAR 124 - Class B |
|---|---|---|
| Issuer | World Bank | World Bank |
| Size (Aggregate Nominal Amount) | US$ 75 million | US$ 150 million |
| Covered Perils | Earthquake | Tropical Cyclone |
| Trigger Type | Modeled Loss | Modeled Loss |
| Trade Date | November 15, 2019 | November 15, 2019 |
| Settlement Date | November 22, 2019 | November 22, 2019 |
| Scheduled Maturity Date | December 2, 2022 | December 2, 2022 |
| Issue Price | 100% | 100% |
| Bond Coupon (per annum) | 3-month US$ Libor+Funding Margin+Risk Margin (subject to a minimum rate of interest equal to the Risk Margin) | 3-month US$ Libor+Funding Margin+Risk Margin (subject to a minimum rate of interest equal to the Risk Margin) |
| Funding Margin | -0.12% per annum | -0.12% per annum |
| Risk Margin | 5.50% per annum | 5.65% per annum |
| Coupon Payment Dates | Monthly | Monthly |
| Redemption Amount | The Aggregate Nominal Amount reduced by any Principal Reductions, Partial Payments, or Partial Redemptions | The Aggregate Nominal Amount reduced by any Principal Reductions, Partial Payments, or Partial Redemptions |
| Principal Reductions | Depending on the calculated Earthquake Modeled Loss following any Earthquake Event, the Outstanding Nominal Amount may be reduced by 0%, 35%, 70%, or 100% | Depending on the calculated Tropical Cyclone Modeled Loss following any Tropical Cyclone Event, the Outstanding Nominal Amount may be reduced by 0%, 35%, 70%, or 100% |
Disclaimers:
This press release is not an offer for sale of securities of the International Bank for Reconstruction and Development ("IBRD"), also known in the capital markets as "World Bank". Any offering of World Bank bonds described herein will take place solely on the basis of the relevant offering documentation including, but not limited to, the Prospectus, the Prospectus Supplement, the Final Terms and any related legal documentation. Investing in the bonds described herein is speculative and involves a high degree of risk including the risk of a total loss of principal amount of the applicable Class. The bonds will be offered and sold, and may be reoffered and sold, only to investors who (i) are “qualified institutional buyers” within the meaning of Rule 144A under the United States Securities Act of 1933, as amended, and (ii) are residents of and purchasing in, and will hold the bonds in, a permitted U.S. jurisdiction or a permitted non-U.S. jurisdiction (and meet the other requirements set forth under “Notice to Investors” in the Prospectus Supplement). The bonds will not transferable except in accordance with the restrictions described under “Notice to Investors” in the Prospectus Supplement.
Net proceeds of the bonds described herein are not committed or earmarked for lending to, or financing of, any particular projects or programs, and returns on the bonds described herein are not linked to the performance of any particular project or program.
