The Philippines: Typhoon Odette triggers USD52.5mn payout from cat bond

  • TYPHOON ODETTE has triggered a partial payout for the government worth USD52.5mn (PHP2.7bn) from catastrophe-linked bonds (CAT bonds) issued by the World Bank, the Department of Finance (DoF) said.
  • An event calculation requested by the Treasury showed wind readings from Typhoon Odette resulted in a partial payout.
  • “The level triggered was for a Yolanda-type event or a 1-in-19 years severity typhoon hitting the Philippines,” the DoF said. Super typhoon Yolanda, one of strongest tropical cyclones in history, hit the country in 2013, causing the death of more than 7,000 people.
  • Another payout could be calculated after rain readings become available in the next few months. “Our successful CAT bond issuance in 2019 has now yielded tangible results that will benefit communities most vulnerable to the devastating effects of climate change,” Finance Secretary Carlos G. Dominguez III said.
  • “This financial instrument is just among the several innovative strategies that the government is undertaking to improve our resilience against natural calamities.”
  • The World Bank in 2019 issued the three-year catastrophe bonds on behalf of the Philippines, which provides insurance protection for up to USD75mn in losses from earthquakes and USD150mn in damage from tropical cyclones up to Nov 22.
  • With this recent payout, the Philippine government still has USD97.5mn in coverage for typhoons, along with the USD75mn allotment for losses from earthquakes. The two tranches have a settlement date of 22 Nov 22 and maturity date of 2 Dec 22.
  • The CAT bond was issued through the World Bank’s capital-at-risk notes facility aimed at transferring risks related to natural disasters to capital markets, in which the Philippines pays the risk premium portion of the total coupon payment to investors.
  • This issuance is the first CAT bond sponsored by the government of an Asian country. It was also the first CAT bond to be listed in the Singapore Exchange and in any Asian exchange.

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