World Bank CAR notes

World Bank CAR (Capital-at-Risk) notes are bonds whose principal covers a country's catastrophe risk. The International Bank for Reconstruction and Development (IBRD) issues them directly, with no special purpose vehicle and no collateral trust. August 2017: the IBRD issued 360 million dollars of catastrophe notes for Mexico, in four classes, earthquake and hurricane. On September 7 a magnitude 8.1 earthquake struck off Chiapas. The relevant earthquake class paid out its full principal, 150 million, a few weeks after it was placed. The Capital-at-Risk program had started in 2014 with a small first deal for CCRIF (the Caribbean Catastrophe Risk Insurance Facility). Then came the Pacific Alliance in 2018, over 1.3 billion covering Chile, Colombia, Mexico and Peru, followed by the Philippines in 2019 and Jamaica in 2021 and in 2024. The structure differs from a standard cat bond on one point that changes everything for the investor. There is no Bermuda special purpose vehicle and no collateral account. The Bank issues off its own balance sheet and keeps the proceeds. The investor takes IBRD's AAA credit on top of the catastrophe risk. On the other side, the Bank assumes the country's risk through an insurance contract or a swap with the government or its state insurer, and the country pays it the premium. The trigger is almost always parametric: magnitude and depth inside boxes for an earthquake, central pressure and track for a hurricane. A modeling firm acts as calculation agent. The country gets a payout in days rather than months and a counterparty nobody questions. It keeps the basis risk, which Jamaica lived through in 2024 when Beryl passed too far away to trigger.