Ja secures US$150m hurricane cushion
Published:Saturday | April 27, 2024 | 12:11 AM
With little more than a month before the start of what is expected to be one of the most active hurricane seasons on record, the Jamaican Government has secured US$150-million insurance coverage through its World Bank catastrophe bond programme.
The catastrophe bond will provide coverage against possible losses that could occur from disasters during the next four Atlantic hurricane seasons ending in December 2027.
In 2021, Jamaica became the first small island state to independently sponsor a catastrophe bond in the amount of US$185 million to cover three hurricane periods spanning 2021 to 2023.
The Weather Channel reported recently that 24 named storms and 11 hurricanes are forecast for the 2024 hurricane season which starts on June 1 and ends November 30.
Forecasters say that this year’s forecast is well above the 30-year average tally for hurricanes and storms.
In March, Finance and the Public Service Minister Dr Nigel Clarke signalled during a meeting of Parliament’s Standing Finance Committee that the Government intended to secure insurance coverage against disasters for the next four hurricane seasons.
Jamaica, like its Caribbean neighbours, is exposed annually to tropical cyclone events that threaten lives and livelihoods as well as the country’s economic outlook.
Multi-layered strategy
The World Bank states that the catastrophe bond forms part of a multi-layered disaster risk financing strategy reducing the fiscal burden of natural disasters while allowing the Jamaican Government to respond swiftly.
The cat bonds were issued under the World Bank’s “capital at risk” notes programme, which can be used to transfer risks related to natural disasters and other risks from developing countries to the capital markets.
According to the World Bank, the bonds’ parametric structure makes funds readily available to finance insurance payouts to Jamaica if a severe tropical cyclone event occurs.
It says payouts to Jamaica will be triggered when a named storm event meets the criteria for location and severity set forth in the bond terms. The cat bond attracted 15 global investors, providing the funding for catastrophe insurance to Jamaica for four hurricane seasons.
The finance minister said Jamaica is pleased to have sponsored the second catastrophe bond in the international capital markets protecting the country against natural disasters with the “much appreciated support and assistance of the World Bank”.
“Consistent with our national natural disaster risk financing policy, we seek to ensure the availability of fiscal resources to enable an immediate response to emergency expenditures that could arise from a direct hit by a high intensity hurricane. This catastrophe bond covers hurricane seasons 2024, 2025, 2026 and 2027 and complements other disaster risk financing instruments that we have in place,” Clarke said.
Jorge Familiar, vice-president and treasurer of the World Bank, said the institution was proud to have partnered with Jamaica for the second time on a catastrophe bond transaction.
“Over recent years, Jamaica has done a very impressive job with its fiscal consolidation. Through its comprehensive disaster risk strategy, of which this cat bond renewal plays a critical part, Jamaica is proactively protecting its fiscal position against risk in a manner that could become a model for other countries vulnerable to natural catastrophe risk,” said Familiar.
Lilia Burunciuc, country director for Caribbean Countries, World Bank, said the need for the Caribbean to prepare for disaster impacts cannot be overstated, as it is one of the most vulnerable regions globally. Important to this process is having available resources and the World Bank is pleased to support Jamaica’s catastrophe bond, which will help the country respond and rebuild quickly in the event of an impact,” he said.