THE Philippines is set to receive $52.5 million (or about P2.69 billion) next month from the proceeds of its maiden catastrophe bonds (CAT Bonds) that were triggered with the onslaught of Typhoon Odette (international name Rai).
The Department of Finance (DOF) said last Tuesday that the Bureau of the Treasury requested an event calculation after the typhoon hit the country in December.
Results of the event calculation for the parameters reached the level that triggered the release of the payout to the government.
The level triggered was for a Yolanda-type event or a 1-in-19 years severity typhoon hitting the Philippines.
Finance Undersecretary Mark Dennis Y.C. Joven, who heads the DOF’s International Finance Group, told the BusinessMirror the Philippine government is scheduled to receive the amount by February.
“Basically the World Bank issued bonds bought by investors, and upon the happening of a catastrophe which meets the threshold, bank need not pay back the investors and money goes to the Philippines,” Joven said.
Disaster coverage
IN November 2019, the Philippines through the World Bank issued two tranches of CAT Bonds to raise $225 million to cover for the Philippines’s losses in recent earthquakes and tropical cyclones.
The Washington-based lender issued $150 million and $75 million in CAT Bonds covering losses from tropical cyclones and earthquakes from November 2019 to November 2022, respectively.
The bonds were issued through the World Bank’s “Capital-at-Risk Notes” facility.
Under the arrangement, the Philippines pays the risk premium portion of the total coupon payment to CAT Bond investors.
With the payout, the government has an outstanding $97.5-million coverage for typhoons and $75-million coverage for earthquakes until November 2022.
A second calculation would be done for the bond once precipitation data becomes available in the coming months.
Utilizing a risk layering framework, the government implements a variety of risk retention and risk transfer instruments to maximize its resources in providing financial protection against natural disasters.
Many firsts
THE successful bond float marked several firsts for the Philippine government and the Asian capital market. Aside from being the first CAT Bond for the Philippines, the issuance is also the first CAT Bond for any Asian sovereign, to be listed in the Singapore Exchange (SGX) to be listed in any Asian exchange and the first WB-issued CAT Bond listed in the SGX.
Finance Secretary Carlos G. Dominguez III welcomed the development, saying the country’s successful float of the country’s first ever-insurance linked security (ILS) or CAT bond has “now yielded tangible results that will benefit communities most vulnerable to the devastating effects of climate change.”
“This financial instrument is just among the several innovative strategies that the government is undertaking to improve our resilience against natural calamities,” Dominguez said. “We will continue to tap the international financial markets and create innovative structures and projects to achieve our goal of being a world leader in the fight against the climate crisis.”