World Bank mulls issuing “extreme weather" bond for Pacific Alliance

World Bank mulls issuing “extreme weather" bond for Pacific Alliance

Bonds Debt Capital Markets Corporate & Sovereign Strategy Chile Colombia Mexico Peru

The World Bank and the Pacific Alliance trading bloc are in talks about the possibility of issuing a second catastrophe bond to insure against extreme weather events, LatinFinance has heard.

Finance ministers from the four Alliance members - Chile, Colombia, Mexico and Peru – are jointly evaluating “financial mechanisms for risk coverage for hydro-meteorological [or high impact weather] events,” they said in a statement during the latest Pacific Alliance summit in Lima.

Gabriel Yorio, head of the public debt office at Mexico's Finance Ministry, said the notes would fit into his country’s strategy to “cover a spectrum of catastrophic risks” from recurring extreme weather events.

Mexico has a long history of issuing catastrophe bonds, having launched several bonds in the past 10 years to help shield itself against a growing number of earthquakes and hurricanes.

A World Bank spokesperson said negotiations with the Pacific Alliance are progressing, but that it was too early to discuss future deal amounts or structuring conditions.

The Pacific Alliance group obtained a World Bank-backed, $1.36bn catastrophe bond in February 2018, the first multi-country cat bond of its kind.

Now Peru is gearing up to become the facility’s first aid recipient.

Finance Ministry sources have confirmed that the country will receive a $60m payout following a magnitude-8 earthquake in late May that triggered the compensation mechanism.

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