By Jasper Cox
The World Bank issued the first catastrophe bond to be sponsored by an Asian government – and the first to be listed on the Singapore Exchange – in November in a landmark transaction for the region.
The deal insures the Philippines against losses of up to $225 million. The bond came with two tranches: $75 million of earthquake protection and $150 million of protection from tropical cyclones.
If an earthquake or a cyclone is projected to cause a certain amount of loss, the bond will trigger, meaning investors will lose their principal and the Philippines government will receive budget support.
The bond has a three-year maturity, meaning the coverage lasts this long unless it is exhausted before then.
The deal is important for the Philippines, which the World Bank says is “among the most disaster-prone countries in the world”.
In 2013, super typhoon Yolanda caused 6,300 deaths and an estimated $12.9 billion of damage, equivalent to about 4.7% of the country’s GDP.
But the deal wasn’t just a boon for the Philippines, it also puts Singapore in play.
The cat bond, listed in the city sate, comes as Singapore aims to become a hub for insurance-linked securities (ILS), challenging venues such as Bermuda and London.