CASE STUDYWorld Bank Catastrophe Bond provides Jamaica withFinancial Protection against Tropical Cyclones
The World Bank issued a catastrophebond (cat bond) that provides theGovernment of Jamaica with US$185
million insurance cover for threehurricane seasons ending in December
2023.
The cat bond complements Jamaica’s portfolio of disasterrisk financing instruments increasing its financial resilienceagainst disasters.

Background
Jamaica is highly exposed to natural disasters, withhurricanes and earthquakes posing threats to Jamaicans
and their macroeconomic outlook. Natural disasters havecost Jamaica an estimated US$1.2 billion between 2001 and2010. The damages and losses from Hurricane Ivan in 2004
alone exceeded US$350 million. The Government ofJamaica (GoJ) is implementing a strategy that aims toprovide Jamaica with 360-degree resilience to naturaldisasters. This includes reforms covering financial, physical,and social resilience and is supported by the World Bank(WB) through various financing instruments and technicalassistance.
While the GoJ has been improving its financial resiliencethrough pre-arranged funding for post-disaster activities,
existing disaster risk financing instruments (a contingency
fund, contingent credit, and catastrophe insurance fromthe Caribbean Catastrophe Risk Insurance Facility (CCRIF))
are insufficient and leave Jamaica with large financing gaps
particularly for tropical cyclone events.

Financial and Project Objectives• Increase financial resilience against tropical cyclones
without increasing sovereign debt.
• Provide access to quick disbursing and cost-effective
insurance from the capital markets.
• Design a granular CAT-in-a-grid trigger structure for theisland of Jamaica.
• Optimize the insurance cover for Jamaica with limited
funding.

Photo Credit: REUTERS / Alamy Stock Photo

Financial Solution
In July 2021, the WB issued to capital market investors a catbond that provides the GoJ with US$185 million of
insurance cover for tropical cyclone events for the 2021, ’22
and ’23 hurricane seasons.
The GoJ with financial support from the UK and Germany
funded Global Risk Financing Facility (GRiF) and the UnitedStates Agency for International Development (USAID) pays
a premium for the cover, which the WB transfers to the catbond investors. The premium is fixed during the life of thebond, removing the uncertainty of the cost.
The type of events that will trigger a payout were predefined during the structuring of the transaction based on
the requirements of Jamaica. If a qualifying event occurs,
Jamaica will issue a notice to the independent calculation
agent (AIR Worldwide) who will determine the payout
amount based on the central pressure and track of thecyclone.
The WB will transfer the payouts to the GoJ as soon as acalculation report is available, within weeks of a tropical
cyclone event, without the need to assess real losses
incurred by the country.

Outcome
The GoJ is the first government in the Caribbean region, andthe first of any small island state, to independently sponsor
a cat bond. Jamaica was one of the sixteen countries in theCCRIF that benefitted from IBRD’s first ever cat bond in2014.

CASE STUDYThis transaction includes an innovative reporting feature
resulting in a quick payout calculation, within weeks of atropical cyclone event. It is also the first cat bond to use acat-in-a grid parametric trigger design for tropical cyclonerisk.
The bond was issued under the WB’s “Capital at Risk” Notes
program, which can be used to transfer risks related tonatural disasters and other risks from developing countries
to the capital markets. The cat bond attracted 21 investors
globally. The investor distribution was as follows:
Geographic Distribution

Investor TypeEurope

60%

ILS Fund66%

North America

24%

Insurer / Reinsurer

17%

Bermuda15%

Asset Management

14%

Asia

1%

Pension Fund

3%

Fitch Ratings, which incorporates natural disaster risk andmitigation in its ratings, issued a special report on how thetransaction significantly strengthens GoJ’s natural disasterrisk mitigation strategy. 1

Transaction Structure

World Bank’s RoleThe cat bond is the latest activity in a longstanding WB
engagement on disaster risk management with Jamaica
which has included policy actions, investment lending andtechnical assistance. Prior to engaging in this transaction,
the WB supported Jamaica in understanding the financial
impact of tropical cyclone and earthquake events and inanalyzing the costs and benefits of financing disasters using
various disaster risk financing instruments available to andunder consideration by Jamaica.
Following a request from Jamaica for a cat bondtransaction, the WB managed the preparation, structuring
and execution of the cat bond, procuring the external
service providers required for the transaction which
included Swiss Re and Aon Securities as lead managers andAIR Worldwide as risk modeling firm and event calculation
agent as well as external counsel and listing agent.
The WB was able to secure donor grants for Jamaica fromboth GRiF and USAID, which were used to finance cat bondpremium and transaction costs and ultimately maximize
the potential payouts for Jamaica. While the WB has issuedmany cat bonds for countries, this is the first cat bondfinanced using an Investment Project Financing (IPF)
instrument, with the GRiF grant financing the IPF project.

Transaction Summary
Peril

Tropical Cyclones

Principal (Coverage Amount)

US$185 million

Risk Period

2.4 years (24 July 2021 to 21 Dec 2023)

Trigger Type

Parametric CAT-in-a-gridPayout Structure

Linear sliding scale based on severity of storm with a minimum payout of 30% of principal andmaximum payout of 100% of principal

Risk Statistics (Annual)

Expected Loss: 1.52%, Attachment Probability 2.37%

Price/ Premium Multiple

Risk Margin: 4.4%

Contacts: Miguel Navarro-Martin, Financial Products & Client Solutions,  mnavarromartin@worldbank.org  +1 (202) 458 4722
Michael Bennett, Manager, Market Solutions and Structured Finance,  mbennett1@worldbank.org  +1 (202) 458 5099
The World Bank Treasury
1225 Connecticut Avenue NW, Washington, D.C., 20433, U.S.A.

Fitch Ratings, September 16, 2021, “Jamaica Dashboard: Cat
bond Adds New Layer of Protection Against Hurricanes”

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