No Filipino Cat Bond Pays for the Winds of Storm Megi (Agaton)


The Calculation Agent has now found that holders of the IBRD CAR 123-124 Catastrophe Bond issued by the World Bank of Philippine Governments experience no loss of principal from the wind-related impacts of Tropical Storm Megi (locally known as the name of Storm Agaton), Artemis learned .

Tropical Storm Megi (Agaton) never reached typhoon status when it hit the Philippines in April 2022, with its sustained winds only reaching around 65 km/h, while wind gusts were higher. high at 80 or 90 km/h.

But the damage from Megi was widespread and, as we reported at the time, the Republic of the Philippines Treasury Office sent a notice to the Calculation Agent of its World Bank Catastrophe Bond to assess whether the storm was severe enough to merit any compensation under the cat bond catastrophe insurance policy.

After a much stronger storm, Super Typhoon Rai, the World Bank backed the issuance of IBRD venture capital notes, with the Philippine government receiving a payment of US$52.5 million on the principal of the bonds cat, which represents a payout of 35% of its $150 million. Cat bond notes exposed to class B cyclone risk.

As we explained last week, there is no additional payment due after Typhoon Rai’s rainfall calculation, as this cat bond has separate processes so that it can cover storms that are important vectors of rain.

This is exactly what Typhoon Megi (Agaton) was, a weaker tropical cyclone, but one that caused significant damage largely due to its rains and the damage they caused by flooding and landslides. ground.

Landslides and flooding destroyed property and infrastructure across the Philippines as the storm made landfall twice as it passed over the country, killing more than 175 people from Storm Megi, mainly in the Visayas region of the Philippines.

The government noted that significant monetary damage had occurred, especially to agriculture and infrastructure.

Although Megi did not reach typhoon-force winds, which are generally accepted to be above the same threshold as hurricane status, the Philippine government still wanted to explore whether it could recover as part of its catastrophe bond.

The Office of the Treasury sent a notice to the calculation agent AIR Worldwide to make an event calculation based on this storm, and now the first determination has returned, for the wind-related component of the modeled loss type trigger.

We are now told that no payments are due, as the calculation process deemed that the winds from Storm Megi were not strong enough to break the Philippines Catastrophe Bond trigger.

However, the calculation of modeled losses performed by AIR takes into account both precipitation and wind speed. In the case of Storm Megi, precipitation is likely to be the main contributor to the amount of modeled loss, which the risk modeler derives from its post-event calculation process.

The first step is complete, in that Megi’s wind calculation process shows no loss of principal from the investor to the catastrophe bond holder.

The calculation of rainfall for the catastrophe bond in the Philippines will be undertaken as soon as the data becomes available.

As we explained last week, this can take some time and in the case of Typhoon Rai, the rainfall calculation was not completed until nearly four months after the first wind damage payment was made. has been determined to be due.

As a result, this may all come down to values ​​exposed to precipitation, in the model itself and it may take a few more months before holders of the Philippine cat bond know that there will be no principal reduction due to storm Megi.

After Typhoon Rai was triggered and paid off, the World Bank cat bond in the Philippines has catastrophe insurance coverage of $97.5 million remaining specifically for tropical cyclones, so storms and typhoons, from the class B banknote tranche.

You can learn all about the Philippines’ historic catastrophe bond, the World Bank’s IBRD IBRD CAR 123-124 issue, in our comprehensive catastrophe bond Directory of offers which includes details of over 850 transactions.

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