The World Bank (International Bank for Reconstruction and Development, or IBRD) priced a catastrophe bond that will provide the Government of Jamaica with financial protection of up to US$185 million against losses from named storms for three Atlantic tropical cyclone seasons ending in December 2023.
In a statement released on Monday, they shared that the Government of Jamaica is the first government in the Caribbean region, and the first of any small island state, to independently sponsor a catastrophe bond. Jamaica was one of the sixteen countries in the Caribbean Catastrophe Risk Insurance Facility that benefitted from IBRD’s first ever catastrophe bond in 2014.
The bonds were issued under IBRD’s “capital at risk” notes programme, which can be used to transfer risks related to natural disasters and other risks from developing countries to the capital markets. Payouts to Jamaica will be triggered when a named storm event meets the parametric criteria for location and severity set forth in the bond terms. The transaction includes an innovative reporting feature resulting in a quick payout calculation, within weeks of a qualifying named storm. It is also the first catastrophe bond to use an innovative cat-in-a grid parametric trigger design for tropical cyclone risk.
Jingdong Hua, vice-president and treasurer, World Bank, said, “We are pleased to be able to support this transaction and bring together so many different partners all committed to strengthening Jamaica’s resilience to tropical cyclones. We especially thank the capital market investors for their support and participating in this important mission.”
According to Carlos Felipe Jaramillo, vice-president for Latin America and Caribbean, World Bank, “The Caribbean region is vulnerable to climate related events and we know how important it is to protect the welfare of the people in the region. We are proud to support Jamaica in reducing risks associated with these kinds of events.”
Dr Nigel Clarke, minister of finance and the public service said, “The Government of Jamaica has strategically prioritised Disaster Risk Financing to mitigate the adverse fiscal impact of tropical cyclones and natural disasters, thereby strengthening Jamaica’s economic resilience.
“We are pleased with the successful placement of this catastrophe bond, which adds an indispensable layer of disaster risk financing that complements our multi-layered approach. In this transaction, Jamaica benefited from the vast technical resources of the World Bank, and from the strength of its balance sheet,” Clarke stated.
The release stated that Jamaica is highly exposed to tropical cyclone events which pose a significant threat to the country’s macroeconomic outlook, and with this and other financing instruments and technical assistance, the World Bank has offered its support.
The catastrophe bond transaction, according to the statement, has received financial support from the US through the United States Agency for International Development, the World Bank’s Disaster Protection Program funded by the United Kingdom, as well as the Global Risk Financing Facility (GRiF). The GRiF, implemented by the Global Facility for Disaster Reduction and Recovery (GFDRR) and the World Bank’s Disaster Risk Financing and Insurance Programme and is supported by Germany and the United Kingdom to provide grants to strengthen the financial resilience of vulnerable countries through establishing or scaling-up pre-arranged risk financing instruments.