Joint sovereign cat bond
A pooled issuance through which several countries buy catastrophe protection from capital markets at the same time, each with its own tranche and trigger, to share fixed costs and diversify risk for investors.
A sovereign cat bond is costly to put together: modeling, documentation, rating, placement. For a mid-sized country, those fixed costs weigh heavily against the amount covered. A joint issuance shares them: an intermediary, often the World Bank, issues several tranches on the same day, one per country, each with its own parametric trigger and a payout that goes only to the affected country. Investors can build a portfolio of risks with little correlation among them, which lowers the spread they require. No country guarantees the others: the pooling covers market access and costs, not losses, which sets it apart from a regional pool such as CCRIF.
In February 2018, the World Bank issued about 1.36 billion dollars of earthquake cat bonds for Chile, Colombia, Mexico and Peru, members of the Pacific Alliance: 500 million for Chile, 400 for Colombia, 260 for Mexico and 200 for Peru, the largest issuance of its kind at the time.
Follow the research
One letter a week. First, the week's underwriting note, when one is published: a dated, argued decision, signed by Paul Bernardski. Then what the observatory published on cyber risk, political risk and insurance. No account, no tracking.
No spam, one-click unsubscribe, no data ever sold.