Sponsored by the 1818 Society Global Finance Thematic Group
Moderated by Aquiles Almansi
Speakers: John Pollner and Miguel Navarro-Martin
Given the challenge of climate change and commensurate loss financing from extreme events, the instrument of catastrophe bonds have taken new relevance. Catastrophe bonds (known as ‘cat bonds’) are a financial instrument that combines an insurance contract (against major natural disasters and climate events) with a capital market bond issued to investors, and where there is an intermediary special purpose trust vehicle (SPV) which converts the insurance premiums into the bond’s yield spread. The SPV, not the insured party, issues the bond, which is purchased by investors because such bonds have similar “default” chances as a lower level investment grade bond, and more importantly because they have no correlation to the ups and downs of the capital market. These bonds typically pay out not based on individual property losses but based on a parametric trigger which is akin to a local macro area indicator of loss which defines the payout (and is much less costly than individual property loss assessments). In the mid 2000, the Bank undertook a key role in implementing these instruments in developing country markets. Now with climate change issues, the bonds may take on new significance as a financing instrument for climate change induced disasters.
John Pollner, now retired, was Lead Financial Officer in the Bank, covering the financial sector (insurance, banking, pension, securities) in ECA and LAC. In 1997, inter alia, he started designing a catastrophe insurance pool for the hurricane struck Caribbean, and in 2006 implemented a technical assistance project which provided advice to Mexico’s Ministry of Finance to set up Mexico’s first earthquake Cat Bond which was also a first sovereign cat bond. Following that, and since 2009, the Bank’s Treasury took over and led the Bank’s Cat Bond program and since then has issued an additional 5 Cat Bonds on behalf of Mexico, as well as in several other countries.
Miguel Navarro is Manager, Financial Products and Client Solutions, Treasury, World Bank. He manages the team responsible for the design and implementation of financial solutions to help clients: (1) access financing for development by mobilizing World Bank Group resources and private sector financing; (2) mitigate the impact of financial and natural disasters risks by facilitating access to insurance and other market-based risk management products; and (3) strengthen capacity to implement efficient thematic bond issuances and risk management strategies by providing advisory services. Miguel’s TRE Unit is instrumental in implementing Cat Bond solutions for Clients under TRE Insurance for Disaster Risk Management client solutions program.
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