Jamaica has signed off on important grant funding arrangements, paving the way for its long-awaited catastrophe bond issuance to get on the way.

Jamaica has been planning a catastrophe bond issuance for two years now to enhance its disaster insurance arrangements in advance of the 2020 hurricane season. However, the catastrophe bond deal, which had been a work in progress for some years prior, was forcibly delayed by the novel coronavirus pandemic but is now being given full attention.

Work to get the catastrophe bond up and running was given a boost recently with Jamaica securing important grant funding, which will pay for the majority of the catastrophe bond premiums. The funding secured will also be used to offset upfront issuance costs.

Informed sources tell Sunday Finance that Jamaica has secured support from the UK and Germany through the Global Risk Financing Facility (GRiF), and the United States through USAID.

Role played by World Bank

The sources add that the World Bank has played its part in both facilitating the bond issuance and acting as an advisor and placement agent. Based on the deal as Sunday Finance understands, it is that the World Bank Treasury will issue the catastrophe bond on behalf of Jamaica’s Government, with its IBRD Capital-At-Risk notes programme the likely structure that will be used for the issuance.

Jamaica’s catastrophe bond will feature a parametric trigger and that it will provide the country with a capital markets source of disaster insurance against impacts caused by hurricanes. With these important grant agreements now signed, the funding to support most of the premiums and transaction costs for the deal can now begin to flow.

As a result, work to get the deal to market will now begin in earnest. Sunday Finance sources explains that one of the first order of business is to get a trust fund in place to channel the now signed off grant funding from the UK and Germany.

Artemis, which is the longest-running news, analysis and data media service devoted to catastrophe bond & insurance, non-traditional reinsurance, insurance linked investments and associated risk transfer markets, reports that further funding from USAID has now been signed off.

Trying to have Cat bond in place by peak of 2021 hurricane season

Our sources say the offering of this catastrophe bond for Jamaica should begin soon, with the deal expected to be marketed to investors in the coming weeks. The Government of Jamaica is aiming to have its World Bank-supported catastrophe bond issued and in place, providing a much-needed source of capital market backed disaster insurance protection in advance of the 2021 hurricane season.

Finance Minister Dr Nigel Clarke indicated shortly after the tabling of this year’s national budget that an allocation in the new budget will provide the financing for a range of natural disaster insurance, including more coverage from the CCRIF SPC, alongside the in-progress catastrophe bond.

The World Bank’s work on Jamaica’s first catastrophe bond found that having the disaster risk financing instrument in place is expected to narrow the countries natural disaster financing gap.

Dr Clarke explained the mix of funding and where it would be going, saying, “this is made up of: $1.1 billion for issue of catastrophe bonds (Cat-Bonds) (funded by grants); $1.0 billion to meet premium payments to the Caribbean Catastrophe Risk Insurance Facility (CCRIF); and $200 million to be transferred to the Contingencies Fund.

In addition, $50.0 million is allocated to the National Disaster Fund managed by the Ministry of Local Government and Rural Development. So that’s just under US $7.5 million allocated to the catastrophe bond issuance from Jamaica’s new budget.