World Bank affirms position as largest sovereign risk insurance provider with multi-country earthquake bond

Washington, DC —The World Bank (International Bank for Reconstruction and Development, IBRD) issued sustainable development bonds that collectively provide US$1.36 billion in earthquake protection to Chile, Colombia, Mexico and Peru.

This is the largest sovereign risk insurance transaction ever and the second largest issuance in the history of the catastrophe bond market. It is the first time that Chile, Colombia, and Peru access the capital markets to obtain insurance for natural disasters. 

This also marks the World Bank’s largest catastrophe bond transaction to date, bringing the total amount of risk transactions it has facilitated to nearly US$4 billion—firmly establishing the institution as a leader in helping its member countries access risk insurance through the capital markets. 

The issuance consists of five classes of World Bank bonds: one each for Chile, Colombia and Peru, and two classes for Mexico. Under the respective classes, Chile will receive US$500 million, Colombia US$400 million, Mexico US$260 million and Peru US$200 million in risk insurance. Each class has different terms and all are designed to cover earthquake risks. The triggers are parametric and depend on data provided by the US Geological Survey. The classes for Chile, Colombia and Peru will provide coverage for three years. The classes for Mexico will provide coverage for two years.

The transaction received very strong demand, offering a new diversification to the market in the form of uncorrelated risks from four different geographies. There were more than 45 investors from around the world, and the transaction attracted almost US$2.5 billion of investor orders.

“Helping our client manage risk and build resilience against natural disasters is a strategic priority for the World Bank,” said Arunma Oteh, World Bank Vice President and Treasurer. “This historic transaction cements the World Bank’s role as a pioneer in leveraging capital market instrument to build resilience, and showcases our unique ability to bring together sovereigns for a market transaction that transfers risk and will help support countries when the unforeseen does occur.” 

“When there are people just one disaster away from poverty, managing risk is a development priority,” said Jorge Familiar, World Bank Vice President for Latin America and the Caribbean. “These Pacific Alliance catastrophe bonds are an example of the innovative contributions that stem from the Bank’s partnership with Latin America and the Caribbean.”

The World Bank issued the transaction as part of its broader work to support Chile, Colombia, Mexico and Peru—all member countries of the Pacific Alliance—in managing risk from natural disasters. By structuring the transaction as a joint issuance, countries benefited from cost savings for legal and other fees.

Swiss Re and Aon Securities are joint structuring agents. Swiss Re, Aon Securities, and Citi are joint bookrunners. AIR Worldwide is the modeling agent and calculation agent in support of this transaction. 

Martyn Parker, Chairman Global Partnerships, Swiss Re, said: "By working together to manage their financial exposure to earthquake, the leaders of Chile, Colombia, Peru and Mexico are making a powerful commitment to their people to promote long-term economic development. We are privileged to have been part of this landmark transaction."

Paul Schultz, CEO of Aon Securities, said: “We are honored to support the Pacific Alliance members and World Bank in bringing this pioneering transaction to the market. This record-breaking issuance highlights the strategic partnership between nations seeking efficient sources of capital to fund emergency costs and investors seeking to invest in diversifying risks and support sustainable development initiatives. We are optimistic that this transaction will pave the way for other governments to develop more resilient risk management programs for their uninsured exposures.

John Modin, Head of Insurance Solutions, Citi, said: “Citi is proud to participate in this landmark issuance. This transaction represents the largest sovereign catastrophe bond and the largest earthquake bond ever. But more important, it provides timely and vital support and economic protection for these countries in the event of a catastrophic earthquake.”

Rob Newbold, Executive Vice President, AIR Worldwide, said: “We’re honored to be the modeling and calculation agent for the first ever catastrophe bond to cover earthquake risk in South America, as well as coverage for Mexico. We’ve committed significant resources in improving the resilience of communities in Mexico and South America, and have proudly supported Mexico’s cat bonds since their first one in 2006. Being selected by the World Bank to model this innovative transaction further validates our focus on becoming the leading risk modeler in Latin America.”

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