Catastrophe bondsPhilippines mulls issuing catastrophe bonds to cover costs post-typhoon rebuilding
After Super Typhoon Haiyan ravaged the Philippines in 2013, killed at least 6,300 people and inflicting $13 billion in damage, the Philippine government is now looking at mitigating the costs of rebuilding and protection through catastrophe bonds. The bond sale would help the country with the rebuilding costs and should cover the cost of any future disasters on the same scale as Haiyan. Just last year, the World Bank had issued catastrophe bonds relating to earthquake and cyclone risks in sixteen Caribbean countries.
After Super Typhoon Haiyan ravaged the Philippines in 2013, killed at least 6,300 people and inflicting $13 billion in damage, the Philippine government is now looking at mitigating the costs of rebuilding and protection through catastrophe bonds.
As Insurance Journal reports, the government is in talks with the World Bank regarding a possible foreign-currency offer, according to Roberto Tan, the country’s treasurer.
“Among the greatest threats to the Philippine growth story is our heightened exposure to disaster risk,” Tan said in a 14 March interview in Cebu City.
The bond sale would help the country with the rebuilding costs and should cover the cost of any future disasters on the same scale as Haiyan. The country’s proximity to the Pacific “Ring of Fire” means that it is always at risk for earthquakes and volcano eruptions.
Additionally, the disaster preparedness of many local governments in the country are said not to be adequate for more disasters, and sixteen major cities have been cited as “not ready” for the effects of climate change, according to a study by the World Wildlife Fund and the Bank of the Philippines (BPI Foundation).
In all, the country’s losses fromTyphoon Haiyan are estimated to be about $24.5 billion, or 3.8 percent of the gross domestic product. The country was the world’s seventh-most affected by natural disasters between 1993 and 2012, according to the 2014 Global Climate Risk Index.
Still, the Philippines has been among Asia’s fastest-growing economies, with a gross domestic product increase of 6.1 percent last year.
There would probably be strong demand for a catastrophe bond offer from the Philippines, said Jonathan Ravelas, chief market strategist at Manila-based BDO Unibank, Inc., which is a buyer of the country’s dollar debt. “People will take it, especially after the Philippines’ upgrade to an investment rating. The market is hungry for yield.”
Others are wary, however. Benajmin Cryer, of the Asia Credit Fund division of Franklin Templeton Investments expressed caution. “I’m sure there will be a buyer there, I’m just not sure we are among them,” he said.
Just last year, the World Bank had issued catastrophe bonds relating to earthquake and cyclone risks in sixteen Caribbean countries. The Philippines last sold bonds in January, issuing $2 billion of 25-year notes at 3.95 percent, a record low yield.
“Investors are familiar with the World Bank because they’ve been issuing cat bonds on behalf of other countries,” Tan added. “We’re discussing several structures with them but there’s nothing firm.”
