Philippines government issues first ever catastrophe funds
By Rudolph Ian Alama
The Philippine government, in the fourth quarter of 2019 has offered an initial $225-million for the first-ever Catastrophe Bond (Cat Bond).
The calamity-linked bonds will help provide insurance cover for damages incurred from typhoons and earthquakes. It has been hailed as an innovative financing solution aimed at mitigating the impact of disasters.
Deputy Treasurer of the Philippines Atty. Erwin D. Sta. Ana said the $225-million bond is divided into a $150-million tranche for typhoons and earthquakes tranche worth $75-million.
“It (cat bonds) is ready to protect us just in case certain catastrophes happen,” the Deputy Treasurer said during a press conference held at the Marco Polo during the Retail Treasury Bonds roadshow.
The Philippines is visited by more than a dozen typhoons every year and is prone to earthquakes due to the number of faults in the islands. Southern Mindanao in particular was hit by a series of strong earthquakes in October and in December killing dozens and damaging thousands of structures in Davao City, Davao del Sur and North Cotabato.
As for Mt. Taal where there is a volcanic catastrophe, Sta. Ana said it is covered as volcanic eruptions are characterized by the occurrence of earthquakes.
“People will say, that is volcanic in origin, not tectonic in original, we are going maybe technical about it, we cover earthquakes in general, so if there are earthquakes in the area, that may be a valid claim as long as you have to hurdle a certain loss threshold affecting assets for you to be able to call the insurance,” Sta. Ana said.
The bonds are currently sold at the international capital market. Among those who bought the bonds were those from the international reinsurer market and even those in the capital market.
Sta. Ana said this is the first time the government is issuing such bonds through the help of the World Bank. The Philippines is also the first country to offer such kind of bonds. Finance Secretary Carlos Dominguez hailed the success of the bonds as it mirrors the investor confidence in the Philippine markets and also confidence in the country’s disaster resiliency goals.
The three-year Cat bonds which were listed in the Singaporean Stock Exchange were settled in Nov. 22, 2019 and will mature on Dec. 2, 2022. (PIA/RG Alama)