PH raises $225M from catastrophe bonds to better respond to earthquakes, typhoons

To better respond to natural disasters such as earthquakes and typhoons, the Philippines—through the Washington-based World Bank—has raised $225 million in catastrophe-linked (CAT) bonds, National Treasurer Rosalia V. de Leon said Monday.

De Leon told reporters that the CAT bonds were listed on the Singapore Stock Exchange Monday morning.

According to De Leon, the Bureau of the Treasury’s excess income would be used to pay the premium.

In a separate statement, the World Bank said the CAT bonds were issued in two tranches—$150 million covering losses from tropical cyclones and $75 million in protection for losses from earthquakes.

“The bonds were issued under IBRD’s (International Bank for Reconstruction and Development) ‘capital at risk’ notes program, which can be used to transfer risks related to natural disasters and other risks from developing countries to the capital markets,” the World Bank explained.

“Payouts will be triggered when an earthquake or tropical cyclone meets the predefined criteria under the bond terms,” the World Bank said.

The three-year bonds were settled last Friday, Nov. 22, and will mature on Dec. 2, 2022.

The World Bank noted that the Philippines was among the most disaster-prone countries in the world.

“The World Bank CAT bond is a vital building block to our long-term disaster risk and insurance strategy, which we have been steadily establishing since the aftermath of typhoon ‘Ketsana’ (Ondoy) and ‘Parma’ (Pepeng) in 2009. This instrument addresses the financing gap for immediate post-disaster needs for extremely high-risk events. It complements the government’s existing disaster risk financing mechanisms designed to ensure comprehensive financial protection for the Philippines,” De Leon was quoted by the World Bank as saying.

“The World Bank has been working with the Philippine government for the last eight years to help strengthen the country’s resilience against natural disasters. Through the intermediation of the World Bank, these CAT bonds allow the Philippines to transfer natural disaster risks to the capital markets while enabling the authorities to respond quickly to the needs of citizens when calamities strike. This once again demonstrates the Philippines’ capability to develop innovative financial solutions to mitigate impacts of extreme climate and weather-related events as well as major earthquakes,” said Mara K. Warwick, World Bank country director for Brunei, Malaysia, the Philippines and Thailand.

Many countries in Asia are highly vulnerable to natural disasters, which makes finding innovative, capital markets solutions a major priority to address the impact on their economies, said World Bank vice president and treasurer Jingdong Hua.

The World Bank CAT bonds for the Philippines are the first to be sponsored by the government of an Asian country and the result of a close and long-term partnership between the World Bank and the Philippines government. —BEN O. DE VERA