Catastrophe bond issuance: How countries can insure themselves through the capital markets?

World Bank said it would launch a common catastrophe bond issuance platform that gives governments and public entities access to international capital markets to insure themselves against the risk of natural disasters.

“International Bank for Reconstruction and Development (IBRD) will manage this structure that has been designed specifically to help governments from developing countries access affordable insurance coverage through the capital markets”, World Bank said.

These bonds can be purchased by investors, most often speculative funds that will receive a return depending on the gravity of the natural disaster. In case of earthquakes, floods, hurricanes and other wind storms, the buyer may lose all or part of the expected return, which initially is very attractive.

The platform called MultiCat has already been on trial in Mexico, “one of the most experienced sovereign issuers in the catastrophe bond market’, where $290 million series of notes have been in the offering using the new platform.

“The program establishes a common documentation, legal and operational framework for future catastrophe bond issuances,” World Bank said.

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