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Friday, March 1, 2024

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    PHL Cat Bond Triggers Payout

    The Philippine Government’s Insurance-Linked Security (ILS), otherwise known as the Cat Bond, has resulted in a partial trigger for Typhoon Odette.  

    Following the onslaught of Typhoon ‘Odette’ (International name RAI), the Bureau of the Treasury (BTr) requested an event calculation of the country’s first and only Cat Bond.

    The results of the event calculation for the wind parameters reached the partial trigger for the bond, thus resulting in a US$52.5 million payout for the government.

    The level triggered was for a Yolanda-type event or a 1-in-19 years severity typhoon hitting the Philippines. 

    Last November 2019, the Philippines successfully executed its Cat Bond to provide an additional layer of financial protection against more severe, but less frequent typhoons and earthquakes.

    The Cat Bond was issued through the World Bank (WB)’s Capital-at-Risk Notes facility with which the WB served as issuer.

    Under this arrangement, the Philippines pays the risk premium portion of the total coupon payment to Cat Bond investors.  

    This instrument was structured to provide protection for up to US$75 million for earthquakes and US$150 million for typhoons from November 2019 to November 2022. 

    “Our successful CAT bond issuance in 2019 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,”  Secretary Carlos Dominguez III 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,” he added.

    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.

    The successful issuance marked several firsts for the government and the Asian capital market—the first Cat Bond for the Philippines; first Cat Bond for any Asian sovereign; first Cat Bond to be listed in the Singapore Exchange (SGX); first Cat Bond to be listed in any Asian exchange; and the first WB-issued Cat Bond listed in the SGX. 

    With the payout, the government has an outstanding US$97.5 million coverage for typhoons and US$75 million for earthquakes until November 2022.

    A second calculation would be done for the Bond once precipitation data becomes available in the coming months.



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