Tue | Sep 28, 2021

Clarke: Cat bond premiums to be paid by donors

Published:Friday | July 23, 2021 | 12:07 AM
Minister of Finance Dr Nigel Clarke.
File Minister of Finance Dr Nigel Clarke.

The premiums associated with the US$185 million catastrophe bond being issued for Jamaica by the World Bank’s financing arm, IBRD, will not be paid by Jamaica in the initial phase.

“We are being supported by the governments of Germany, United Kingdom and USAID to pay the entire premium on the bond,” said Minister of Finance and the Public Service Dr Nigel Clarke said.

Clarke added that the bond, which is to be settled today and will take effect on July 24, was not as a “handout” but rather a means to protect the fiscal gains made by the country over recent years.

“Once our debt is down, then we can pay the renewal by ourselves,” he added. The bond covers Jamaica for three storm cycles, up to December 2023. Payouts will be triggered if the storm damage hits the thresholds laid out in the bond. Its renewal is scheduled for year 2024.

Clarke explained that the bond would cover immediate fiscal shortfalls arising from a hurricane that meets a specific intensity. It would see the country accessing funds quickly to cover steep dips in foreign exchange and provide emergency spending.

Scott Cantor from the capital markets department at World Bank Treasury said the notes were only being offered to qualified institutional buyers in permitted jurisdictions, but noted that local institutions could have applied once they satisfied the ‘qualified investor’ status. The cat bond was distributed geographically to investors mostly in Europe, followed by North America, Bermuda, and Asia, respectively.

Aon Securities and Swiss Re Capital Markets are joint structuring agents and joint bookrunners for the transaction, while AIR Worldwide operated as risk modeller and calculation agent. The issue is being done through the International Bank for Reconstruction and Development.

Jamaica is the first government in the Caribbean region, and the first of any small island state, to independently sponsor a cat bond, said the World Bank. It was also a beneficiary of the very first cat bond ever to be issued by the World Bank, which was done in 2014 to benefit the Caribbean Catastrophe Risk Insurance Facility, now rebranded as CCRIF following its expansion into the wider Latin American area. Jamaica was one of 16 governments with membership in the regional insurance facility at the time.

The bonds were issued under World Bank’s “capital at risk” notes programme, which transfers risks related to natural disasters to the capital markets.