Durrant Pate/Contributor

It has been divulged that Jamaica is using its own funds to pay for its second World Bank structured catastrophe bond.

The US$150 million 2024 cat bond unlike the first one issued in 2021, is being paid for by Jamaica out of its own funds.

The cost for that first cat bond is said to have been roughly US$16.5 million for the US$185 million in protection with funding coming from foreign donors.

However, this time around, Jamaica is keen to budget for its renewal itself. The premiums here are being paid for by Jamaica, providing an important example to other countries that might look to the catastrophe bond market as a source of disaster insurance protection.

Jamaica got help with the first cat bond

When Jamaica first ventured into the catastrophe bond market it was with the support of donor funding that paid the premiums for the 2021 issuance.

Financial support to get that first Jamaica cat bond to market came from the United States government through the US Agency for International Development, the World Bank’s Disaster Protection Program with funding from the United Kingdom, and also the Global Risk Financing Facility supported by Germany and the United Kingdom.

International credit ratings agency, Fitch reported in a note on Jamaica’s cat bond renewal, “Jamaica will be responsible for annual payments of US$10.5 million, equivalent to a 1.0 per cent increase in interest costs or a 0.2 per cent increase in total expenditures.”

Jamaica is responsible for the 7 per cent risk margin payments while the World Bank will pay the small 0.19 per cent funding margin and Secured Overnight Financing Rate (SOFR) costs. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities.

Fitch added that the risk margin for the cat bond renewal was higher than the matured issue noting, “the higher cost of funding reflects both higher interest rates and the market’s assessment of increased hurricane risk.”

Underwriting this second cat bond is a testament to the success of the World Bank’s project to issue a catastrophe bond for Jamaica, as well as to the financial management of the country now being on a steady improvement path.

Jamaica’s second cat bond will be listed in Hong Kong and presumably, the country has therefore been able to offset some of the service provider costs using the Hong Kong ILS Grant Scheme.