Through the World Bank earthquake bonds, Chile receives USD500 million, Colombia USD400 million, Mexico USD260 million and Peru USD200 million in insurance cover. The bonds, which are issued by the World Bank, do not contribute to the countries’ debt. If an event occurs that triggers a payout from the bond, the country receives the payout. The investors lose part or all the capital.

The insurance offers protection to government budgets. It is an important complement to emergency funds, budget reserves, contingent credit lines, and other financial instruments governments use in the aftermath of natural disasters.

The bonds follow a two-year partnership between the World Bank and the four countries, all members of the Pacific Alliance. In April 2016, the countries jointly approached the World Bank to explore whether they could obtain insurance through a catastrophe bond to protect themselves from the financial impact of natural disasters.

In response to this request, the World Bank worked with the four countries to assess how catastrophe bonds could be designed to most effectively transfer risk to the capital markets. In the preparatory phase, the World Bank worked with Chile, Colombia and Peru on specialized modelling and analysis to enable the governments to evaluate their earthquake risk. Mexico also shared its extensive experience in using catastrophe bonds to complement its broader disaster risk management efforts. This work benefited from the strong support and financial backing of the Swiss State Secretariat for Economic Affairs (SECO).

The bonds are the successful outcome of this collaboration and form part of a broader strategy to support all World Bank member countries in addressing natural disaster risk. In addition to offering instruments for financial protection, the World Bank provides technical and financial support for risk assessments, risk reduction, preparedness, and resilient recovery and reconstruction through the Global Facility for Disaster Reduction and Recovery and the Disaster Risk Financing and Insurance Program.

The above is extracted from a statement by The World Bank and edited.
The original statement is at http://www.worldbank.org/en/ne...