The World Bank (International Bank for Reconstruction and Development) announced today the launch of the MultiCat Program — a catastrophe bond issuance platform that gives governments and other public entities access to international capital markets to insure themselves against the risk of 'natural' disasters. This is the first time a platform has been designed specifically to help governments from developing countries access affordable insurance coverage through the capital markets.
The MultiCat Program allows participants to buy insurance coverage for multiple perils, countries and regions. The types of events that may be insured are earthquakes, floods, hurricanes and other wind storms. The program establishes a common documentation, legal and operational framework for future catastrophe bond issuances, which will also carry the MultiCat brand name.
The program is flexible and supports a wide variety of structures, including the pooling of multiple risks, to take advantage of diversification benefits. One of the World Bank’s main goals for the platform is to achieve cost efficiency for its clients by offering investors the opportunity to diversify their portfolios with assets that are uncorrelated with other assets and by enlarging the traditional investor base for catastrophe bonds.
“The MultiCat Program is an important step on the road to improving liquidity, reducing transactions costs and facilitating diversification across countries and risks for catastrophe bond investors,” said Kenneth Lay, Vice President and Treasurer of the World Bank. “We believe this will translate into much better access to coverage on significantly better terms for the governments and other public agencies that use it to manage disaster risk, and thus lessen the financial and economic impact of natural catastrophe.”
In developing MultiCat, the World Bank worked closely with the Government of Mexico, one of the most experienced sovereign issuers in the catastrophe bond market. Mexico’s successful use of the MultiCat platform to issue a US$290 million series of notes is the first offering using the new World Bank platform.
“The partnership between Mexico and the World Bank, under its MultiCat Program, has allowed us to efficiently transfer a pool of catastrophic risk — earthquake and hurricane — to the market for the first time, and we are very satisfied with the results achieved,” said Alejandro Werner, Vice Minister of Finance, Government of Mexico. “We are also very proud to have contributed to the creation of this platform that also makes a new set of catastrophe risk management instruments available to other members of the World Bank.
The World Bank Treasury acted as arranger for the transaction, and appointed Swiss Re Capital Markets Corporation and Goldman Sachs as co-lead managers and joint bookrunners and Munich Re as advisor in the transaction.
The MultiCat Program expands the World Bank’s catastrophe risk financing menu, which also includes the Catastrophe Deferred Drawdown Option (CAT DDO), a line of credit that provides immediate access to financing following a natural disaster, and intermediation services for weather hedges and the Caribbean Catastrophe Risk Insurance Facility.
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