Jamaica cat bond may grow, or expand to cover Caribbean: World Bank MD

When a renewal comes up for consideration for the first catastrophe bond transaction to be sponsored by Jamaica, there is already some discussion regarding the need for a larger cover to be in place, or for it to be expanded to cover additional Caribbean island nations, a World Bank Managing Director has said.

Speaking with the Jamaica Gleaner newspaper, Dr Mari Pangestu, the World Bank’s Managing Director of Development Policy and Partnerships, explained that the country’s catastrophe bond has been hailed as a success and particularly noted as an innovative step.

As a reminder, Jamaica’s first catastrophe bond, the IBRD CAR 130 transaction, was placed in July 2021 and saw the Caribbean island nation securing $185 million of disaster insurance protection from the capital markets with the assistance of the World Bank and the IBRD Capital-At-Risk notes program.

The World Bank and its Treasury facilitated the transaction and worked on the deal for at least three years, to get it to market.

The rationale behind the transaction, was to help Jamaica become less reliant on post-event debt financing, to protect its fiscal balance-sheet and to provide a source of disaster risk financing that could pay out quickly in the event of a significant tropical storm or hurricane striking the island nation.

Donor funding paid for the premiums that compensate the investors backing the catastrophe bond coverage, but Jamaica’s government later said it would be keen to work towards being able to pay for a renewal by itself.

But, already discussions have begun as to how to make the cat bond even more useful to Jamaica and perhaps to the wider Caribbean region.

“It has been, so far, a very successful model that has been hailed as an innovative financial instrument.

“I can see that it could be extended for instance, because it finishes December 2023,” Dr Pangestu told the newspaper in her recent interview.

Renewing the cat bond is already being discussed, along with its size and potential for expansion.

Dr Pangestu explained, “”One thing would be to extend it and maybe increase the amount.”

“There is some talk about making it a Caribbean cat bond, because it seems that this has been a very successful model.”

Pangestu went on to explain the important role of the World Bank and its multi-pronged approach to financing for disasters, saying disaster risk financing plays a vital role for countries such as Jamaica.

“Especially for small island developing states like Jamaica, natural disasters and risks coming out of climate and the frequency of climate-related disasters have increased. That is a big concern.

“How you deal with shocks and build resilience must become part of the development story,” she commented.

“Jamaica has been developing a very good fiscal sustainability model, reduced your debt and put on track a very good trajectory for managing debt,” Pangestu added.

The World Bank is in the process of reviewing its programs of work in Jamaica and it seems the catastrophe bond is being viewed favourably, both at the Bank and within the country itself.

Jamaica’s government has repeatedly hailed the cat bond as a key component of its natural disaster risk financing and an instrument it sees as a long-term source of capital that can help it recover after a major catastrophe strikes.