The World Bank has entered into a reinsurance agreement with the state-run pension fund Government Service Insurance System (GSIS) to provide $206 million or about P10.6 billion in coverage for government assets and local government units from natural disasters.
In a statement, the World Bank said the new catastrophe risk insurance program launched by the Philippine government will cover national government assets affected by earthquakes and typhoons as well as losses from major typhoons of 25 provinces.
“Under the program, the GSIS, a government-owned insurance agency, provides the government and the 25 participating provinces with catastrophe risk insurance. [The World Bank] acts as an intermediary to transfer the GSIS’s risk to a panel of international reinsurers which were selected through a competitive bidding process—Nephila, Swiss Re, Munich Re via the subsidiary NewRe, Axa, and Hannover Re. Air Worldwide provides the underlying risk modeling for the transaction,” the World Bank explained.
According to the World Bank, insurance payouts will be made only after the government as well as the participating provinces meet the pre-defined parametric triggers.
The World Bank said the insurance program will “act as the last line of defense, complementing other funding sources such as the national and local disaster risk reduction management funds and contingent credit that protect against less severe natural disasters.”
“The program is the first of its kind in the Philippines and builds on six years of intensive partnership with the World Bank, including the preparation of the first catastrophe risk model for the country and the adoption of a disaster risk finance strategy by the Department of Finance. This is the first time that the World Bank has entered into a reinsurance agreement with a governmental agency, and the first time it is executing a catastrophe risk transaction in local currency,” the World Bank added.
The World Bank noted that the Philippines is among the countries most vulnerable to natural disasters, such that it is projected to incur an average of $3.5 billion in asset losses yearly from earthquakes and typhoons.
“Financial shocks caused by natural disasters undermine economic growth and poverty reduction. This new insurance program illustrates how the World Bank Group can leverage capital from the market to help governments receive fast cash injections for emergency response and to sustain essential services in times of crisis, empowering local governments to more effectively assist their citizens,” Joaquim Levy, the World Bank Group’s managing director and chief financial officer, said.
“This initiative is a major advancement in the Philippines’ efforts to bolster its resilience. It demonstrates the global leadership of the country in developing innovative financial solutions to mitigate the financial impacts of extreme climate and weather related events, as well as major earthquakes,” added Mara Warwick, the World Bank’s country director for the Philippines. JE