The World Bank has doubled its disaster risk insurance for the Philippines with the renewal of its insurance program to respond to losses from climate and disaster risks.
The Washington-based lender, in a news statement, said it is extending $390 million in insurance against major typhoon and earthquake events in 25 provinces.
Under the program, the World Bank enters into an agreement with private reinsurers to provide coverage against disaster and severe weather impacts for national government agencies and participating provinces.
“This initiative demonstrates the Philippines’s strong commitment to continue investing in innovative financial solutions that will mitigate the impacts of major earthquakes and extreme climate and weather-related events,” said Mara K. Warwick, World Bank country director for Brunei Darussalam, Malaysia, Philippines and Thailand. “The program complements the country’s overall strategy and efforts in ensuring resilience against natural disasters and climate change impacts.”
The renewed policy is facilitated by the World Bank through a catastrophe swap that provided the Philippine peso equivalent of $206 million in insurance.
The panel of risk-takers, selected through a competitive bidding process, also doubled under the renewed policy. Risk-takers were able to participate in the transaction either through a derivative contract or a retrocession agreement.
The World Bank said insurance payouts are made when predefined parametric triggers are met. The Government Service Insurance System provides the parametric catastrophe insurance coverage.
The insurance policy is designed to provide rapid liquidity in the face of disasters to the government, to enable rebuilding and recovery to commence.
The World Bank is also supporting the Philippines in preparing a sovereign catastrophe bond to complement the existing insurance program by providing cover for more extreme events.
“Today’s announcement marks another milestone in our partnership with the Philippines, and in our joint pursuit of leveraging capital market instruments to prevent the human and financial tolls of disasters. We look forward to deepening this partnership as we work together to harness innovative financial solutions to boost the country’s resilience against unforeseen events,” World Bank Director for Capital Markets George Richardson said.
The Philippines is among the world’s most vulnerable countries to natural disasters. The country is expected to incur, on average, $3.5 billion in asset losses each year due to typhoons and earthquakes.
Since 2008 the World Bank has issued, hedged or facilitated over $4.3 billion in transactions to transfer earthquake, wind, drought-related and pandemic risks from its borrowing member countries to the capital markets.