WTW designs ‘world-first’ parametric insurance coverage for sovereign debt restructuring
Willis Towers Watson created the world’s first “disaster wrapper” for government bonds for the transaction. The “Disaster Wrap” provides insurance to cover Belize loan repayments following hurricane events. The wrapper strengthens sustainability and resilience to climate shocks that previously resulted in credit downgrades that have exacerbated economic hardship, WTW said.
“Volcanoes, earthquakes and hurricanes repeatedly disrupt economic development in the Caribbean, from households and communities to the state level,” said Dr. Simon Young (pictured above), Senior Director of the Willis Towers Watson Climate and Resilience Center, designed the disaster envelope. “This disorder leads to higher debt and a longer, more painful path to recovery. The parametric wrapper is groundbreaking in the financial resilience of island and coastal states and will help unlock funding for nature-based solutions to meet global net-zero and biodiversity goals. “
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The transaction was marketed and placed by Willis Towers Watson’s alternative risk transfer team. Munich Re offered the best conditions and received 100% of the placement, which covers the first 31 months of the bond term.
As part of Belize’s debt restructuring program, the country purchased its only international bond with a principal of $ 364 million arranged by TNC and insured by International Development Finance Corporation. The commitment allowed Belize to restructure approximately $ 553 million in external trade debt – an amount that accounts for 30% of Belize’s GDP – and reduce its national debt by 12%.
The Willis Towers Watson placement can be used as a template for integrated creditors and issuers as global development finance institutions consider incorporating climate risk into their mainstream government loan programs, WTW said. The parametric wrapper uses objective criteria to trigger the benefits and pays upfront for disaster relief debt service payments.