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Aon Structures Largest Earthquake CAT Bond for World Bank

earthquake swallowing house-SF
February 08, 2018

Aon Securities has assisted the World Bank in structuring the largest ever catastrophe (CAT) bond covering earthquake, providing the organization with $1.36 billion of capital markets protection.

The bond, which mitigates balance sheet risk for the World Bank in Chile, Colombia, Mexico, and Peru by offering protection against earthquake risk on a parametric basis, is the second-largest catastrophe bond on record and represents the largest sovereign risk transfer in the history of the insurance-linked securities sector.

The issuance was made across five tranches of notes—one each for Chile, Colombia, and Peru and two for Mexico. Under the issuance, Chile will receive $500 million; Colombia, $400 million; Mexico, $260 million; and Peru, $200 million in earthquake risk protection.

The bond's parametric trigger is based on US Geological Survey data. Coverage is provided on a three-year basis for the Chile, Colombia, and Peru notes and on a two-year basis for the Mexico notes.

The transaction brings the total amount of risk transfer facilitated by the World Bank to $3.6 billion and is part of the organization's broader work to support Chile, Colombia, Mexico, and Peru—all 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. 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. We are optimistic that this transaction will pave the way for other governments to develop more resilient risk management programs for their uninsured exposures."

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