Jamaica still aims for catastrophe bond with World Bank support

The Government of Jamaica will continue to work alongside the World Bank and other multi-lateral groups to increase its disaster insurance protection this year, even though its priority is a swift economic recovery after the Covid-19 pandemic.

Jamaica had been planning a catastrophe bond issuance for this year, to enhance its disaster insurance arrangements.

The cat bond deal, which has been a work-in-progress for some years now, as we’ve documented regularly, was forcibly delayed by the Covid-19 pandemic, as financial market volatility due to the coronavirus outbreak put the Caribbean island nations’ first cat bond issuance on-hold, the country’s finance minister previously said.

Jamaica got quite far down the line, having secured the support of the UK and Germany, through the Green Climate Fund, and the United States through USAID. While the World Bank acted as the advisor and placement agent.

The support would fund the premiums for the placement of Jamaica’s first catastrophe bond, which was slated to be in place prior to the beginning of the 2020 hurricane season.

But timing of the pandemic escalation was terrible for these efforts and as catastrophe bond markets froze to new issuances, Jamaica pulled the cat bond for the time being.

The country remains committed to expanding its disaster insurance protection though and intends to continue working with the World Bank and we understand that the Jamaican catastrophe bond remains on the cards as a result.

Economic recovery after Covid-19 remains the main focus of the government in Jamaica for now, but disaster insurance and resilience are high on the agenda and likely to remain so.

Jamaica’s Minister of Finance and the Public Service, Dr. the Hon. Nigel Clarke explained in a recent interview that in the new Parliament one of the first orders of business will be strengthening of the country’s disaster risk insurance framework, to ensure it has the capital and liquidity it needs when major natural catastrophes strike.

“We will be further capitalising our Contingencies Fund over the course of this term and with the help and assistance of our multilateral partners, such as the World Bank, procuring catastrophe insurance in the event of a natural disaster,” he told JIS News.

We’re told that this is likely to continue to feature a catastrophe bond, as long as pricing is conducive to issuance.

With cat bond rates now much higher than they were when Jamaica had been testing the market appetite for its cat bond in recent years, the increase in costs may be a surprise.

But with support from other countries and agencies, it’s likely Jamaica will continue to look to the capital markets for its first cat bond, we’re told, as the investor appetite remains strong for new issuances and sponsors.

Being a sovereign catastrophe bond issued with the assistance of the World Bank, it is likely to be parametric in nature if it does come to market over the months before the 2021 hurricane season.

It seems challenging to think an issuance would occur this year, given the ongoing and particularly active hurricane season. But once the season comes to an end, an issuance featuring Caribbean wind risk would likely be very appealing to cat bond funds and investors who are going to be clamouring for issuance to deploy capital they are likely to be able to raise.