News Non-Life16 Oct 2018

Philippines:Govt studying cat bonds

16 Oct 2018

The Philippines is seriously considering proposals like sponsoring catastrophe bonds that could be included in other insurance packages the government is now exploring with Lloyd's of London and the World Bank to cover state assets, the Department of Finance (DOF) said in a statement.

On the sidelines of the annual meetings of the World Bank and the International Monetary Fund (IMF) in Bali last week, the DOF said that it was exploring a plan to sponsor a Cat bond to cover disaster-related risks in the Philippines, reports Business Mirror.

Finance Secretary Carlos G. Dominguez III, with executives of Citi Group (Citi), discussed these proposals, along with a plan to come up with bonds or securities linked to attaining the United Nations’ Sustainable Development Goals.

Citi Vice Chairman for Corporate and Investment Banking Jay Collins explained that the Philippine government will serve as sponsor of a Cat bond, with the World Bank issuing the bond to qualified investors.

Depending on the insurance coverage and its trigger, the Philippines as sponsor of the Cat bond will get paid the principal contributed by investors if a catastrophe occurs. But if there is no trigger, then investors would make a positive return on their investment in the bonds.

Citi helped draw up the $1bn catastrophe bond covering four nations of the Pacific Alliance in Latin America, namely: Chile, Colombia, Peru and Mexico. It was successfully launched earlier this year. It is the largest single issuance of Cat bonds ever facilitated by the World Bank.

The finance chief said the government can have multiple mechanisms to help cover the disaster-related risks both for the national government and local government units (LGUs).

“Right now, we have a local autonomy law and quite a number of the LGUs are liquid that they can buy the insurance. What we want to do is structure a system where everybody can participate. But everybody pays their own share. The national government does. LGUs can participate if they wish but they have to pay their own share,” Mr Dominguez said.

On a broader scale, he said the Cat bond coverage could later be expanded to include other countries within the ASEAN so that funds could be pooled to push down insurance premiums for each country-participant.

Last month the DOF met officials of Lloyd’s of London to discuss possible insurance structures that could be applied to cover the Philippines’s expanding roster of government assets and properties.


 


 

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