Durrant Pate/Contributor

Jamaica’s first US$ multi-million-dollar catastrophe bond is maturing in the next few days with strong indications that the government is set to renew this insurance facility.

The US$185 million IBRD CAR 130 cat bond matures at the end of December 2023. Renewable on the bond will not come in time of its maturity with expectations that it will come sometime in early 2024. However, it remains to be seen whether the renewed cat bond will remain solely for hurricanes.

Jamaican government officials have been extremely favourable in their views on the important role this cat bond plays for the country, making a renewal more likely. There has been much talk about the possibility of a regional cat bond for the Caribbean, with Jamaica being a pioneer for the region in this regard.

Having aided Jamaica in developing its cat bind, the World Bank has been targeting a significant increase in the use of cat bonds by its client countries. Already a number of potential future World Bank cat bond deals are now being discussed.

Growing interest in cat bonds

The World Bank hopes to increase the volume of cat bonds outstanding that it has facilitated and issued on behalf of clients from the current US$1.02 billion to as much as $5 billion within five years. Countries are increasingly turning to insurance risk transfer products to protect their sovereign balance-sheets, as well as to secure efficient and fast-paying disaster risk financing to aid in recovery and reconstruction after catastrophe events occur.

While initiatives like the Group of Seven’s (G7) Global Shield against Climate Risks and the World Bank’s Global Shield Financing Facility are helping to expand understanding of both insurance as a climate and disaster risk financing mechanism for countries and governments, as well as cat bonds.

The next most likely World Bank cat bond renewal and the next due, would be for Mexico, with the US$485 million IBRD/FONDEN 2020 cat bond scheduled to mature in March 2024. The Mexican government was already budgeting for this catastrophe bond to be renewed next year and as a repeat sponsor of cat bonds since at least 2006.

The drivers to renew the Mexico cat bond may have become even more heightened in the wake of recent devastating hurricane Otis, which is set to drive a payout of one tranche from that cat bond, demonstrating again the importance of this disaster insurance protection for the country.

Two other countries, Colombia and Peru, are also exploring new catastrophe bonds with the help of the World Bank at this time, it has been reported.