The Government of Jamaica has secured financing of insurance coverage against named tropical cyclones after the World Bank returned to the global financial markets to raise US$150 million through a catastrophe bond on the country’s behalf.

This is the second time that the World Bank has raised funds through a catastrophe bond for Jamaica following a similar undertaking in 2021. The CAT bond attracted 15 global investors, providing the funding for catastrophe insurance to Jamaica for four hurricane seasons.

“Consistent with our National Natural Disaster Risk Financing policy, we seek to ensure the availability of fiscal resources to enable an immediate response to emergency expenditures that could arise from a direct hit by a high intensity hurricane. This catastrophe bond covers hurricane seasons 2024, 2025, 2026 and 2027, and complements other disaster risk financing instruments that we have in place,” Nigel Clarke, minister of finance and the public service, explained while expressing appreciation to the World Bank for supporting the sponsorship of this second bond.

Given Jamaica’s exposure to tropical cyclones that threaten both lives and livelihoods, as well as the country’s economic outlook, the bond forms part of a “multi-layered disaster risk financing strategy” that aims to reduce the fiscal burden of natural disasters and, at the same time, allow the Government to respond swiftly to such events.

According to the World Bank, the catastrophe bonds can be used to transfer risks from natural disasters and other risks from developing countries to the capital markets.

Due to the bonds’ parametric structure, insurance payouts to Jamaica become readily available when a severe tropical cyclone event occurs. Payouts to Jamaica will be triggered when a named storm event meets the criteria for location and severity set forth in the bond terms.

In a release, Jorge Familiar, vice-president and treasurer of the World Bank, welcomed the partnership with the Jamaican authorities for the second catastrophe bond transaction.

“Over recent years, Jamaica has done a very impressive job with its fiscal consolidation. Through its comprehensive disaster risk strategy, of which this CAT bond renewal plays a critical part, Jamaica is proactively protecting its fiscal position against risk in a manner that could become a model for other countries vulnerable to natural catastrophe risk,” he said.

His colleague, World Bank Country Director for Caribbean Lilia Burunciuc, emphasised the importance of countries in the region being prepared for disaster impacts since they are among the most vulnerable globally. She added that having available resources such as the catastrophe bond will help the countries respond and rebuild quickly in the event of tropical cyclones.

For the current transaction, Aon Securities and Swiss Re Capital Markets were the joint structuring agents and joint book runners. AIR Worldwide is the risk modeller and calculation agent.

The CAT bond will be listed on the Hong Kong Exchange (HKEX), which is the second time the World Bank lists a CAT bond in Hong Kong.