World Bank issues $1.36bn cat bond

The World Bank has issued its largest ever catastrophe bond covering earthquake, providing the organization with $1.36 billion of capital markets protection.

The bond, which mitigates balance sheet risk for the World Bank in Chile, Colombia, Mexico and Peru, offers protection against earthquake risk on a parametric basis. It is the second largest catastrophe bond on record, and represents the largest sovereign risk transfer in the history of the insurance-linked securities sector, according to Aon Securities which assisted in the structuring.

The issuance was made across five tranches of notes – one for each of Chile, Colombia and Peru, and two for Mexico. Under the issuance, Chile will receive $500 million, Colombia $400 million, Mexico $260 million and Peru $200 million in earthquake risk protection.

The bond's parametric trigger is based on US Geological Survey data. Coverage is provided on a three-year basis for the Chile, Colombia and Peru notes, and on a two-year basis for the Mexico notes.

The transaction brings the total amount of risk transfer facilitated by the World Bank to $3.6 billion, and is part of the organization's broader work to support Chile, Colombia, Mexico and Peru – all member countries of the Pacific Alliance – in managing risk from natural disasters.

"This record-breaking issuance highlights the strategic partnership between nations seeking efficient sources of capital to fund emergency costs and investors seeking to invest in diversifying risks and support sustainable development initiatives,” said Paul Schultz, CEO of Aon Securities. “ We are optimistic that this transaction will pave the way for other governments to develop more resilient risk management programs for their uninsured exposures."

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