Aon Securities has assisted the World Bank in structuring the largest ever catastrophe bond covering earthquakes.
The cat bond, which provides the organisation with $1.36 billion of capital markets protection, mitigates for balance sheet risk in Chile, Colombia, Mexico and Peru by offering protection against earthquake risk on a parametric basis.
The bond is the second largest cat bond on record and the second largest sovereign risk transfer in insurance-linked securities industry history.
The issuance was made across five tranches of notes, two for Mexico and one each for the other three countries, and will see Chile receive $500 million, Colombia receive £400 million, Mexico receive $260 million and Peru receive $200 million in earthquake risk protection.
The parametric trigger is related to US Geological Survey data, with coverage provided on a three-year basis for the Chile, Colombia and Peru notes, and on a two-year basis for Mexico.
Following the transaction, the World Bank has now facilitated a total of $3.6 billion in risk transfer.
The bond represents part of the organisation’s work to support member countries of the Pacific Alliance in managing risk from natural disasters.
Paul Schultz, CEO of Aon Securities, said: “We are honored to support the Pacific Alliance members and World Bank in bringing this pioneering transaction to the market.”
He added: “This record-breaking issuance highlights the strategic partnership between nations seeking efficient sources of capital to fund emergency costs and investors seeking to invest in diversifying risks and support sustainable development initiatives.”
