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World Bank Launches "MULTICAT PROGRAM"

Washington, DC, October 16, 2009 – Today, The World Bank (International Bank for Reconstruction and Development) announced today the launch of the MultiCat Program — a catastrophe bond issuance platform that gives governments and other public entities access to international capital markets to insure themselves against the risk of natural disasters. This is the first time a platform has been designed specifically to help governments from developing countries access affordable insurance coverage through the capital markets.

The MultiCat Program allows participants to buy insurance coverage for multiple perils, countries and regions. The types of events that may be insured are earthquakes, floods, hurricanes and other wind storms. The program establishes a common documentation, legal and operational framework for future catastrophe bond issuances, which will also carry the MultiCat brand name.

The program is flexible and supports a wide variety of structures, including the pooling of multiple risks, to take advantage of diversification benefits. One of the World Bank’s main goals for the platform is to achieve cost efficiency for its clients by offering investors the opportunity to diversify their portfolios with assets that are uncorrelated with other assets and by enlarging the traditional investor base for catastrophe bonds.

“The MultiCat Program is an important step on the road to improving liquidity, reducing transactions costs and facilitating diversification across countries and risks for catastrophe bond investors,” said Kenneth Lay, Vice President and Treasurer of the World Bank. “We believe this will translate into much better access to coverage on significantly better terms for the governments and other public agencies that use it to manage disaster risk, and thus lessen the financial and economic impact of natural catastrophe.”

In developing MultiCat, the World Bank worked closely with the Government of Mexico, one of the most experienced sovereign issuers in the catastrophe bond market. Mexico’s successful use of the MultiCat platform to issue a US$290 million series of notes is the first offering using the new World Bank platform.

“The partnership between Mexico and the World Bank, under its MultiCat Program, has allowed us to efficiently transfer a pool of catastrophic risk — earthquake and hurricane — to the market for the first time, and we are very satisfied with the results achieved,” said Alejandro Werner, Vice Minister of Finance, Government of Mexico. “We are also very proud to have contributed to the creation of this platform that also makes a new set of catastrophe risk management instruments available to other members of the World Bank."

The World Bank Treasury acted as arranger for the transaction, and appointed Swiss Re Capital Markets Corporation and Goldman, Sachs & Co. as co-lead managers and joint bookrunners and Munich Reinsurance Company as advisor in the transaction.

The MultiCat Program expands the World Bank’s catastrophe risk financing menu, which also includes the Catastrophe Deferred Drawdown Option (CAT DDO), a line of credit that provides immediate access to financing following a natural disaster, and intermediation services for weather hedges and the Caribbean Catastrophe Risk Insurance Facility.

MultiCat Mexico 2009
The first offering under the MultiCat Program was concluded this week with the successful issuance of a US$290mm series of notes by MultiCat Mexico 2009. The issuer is a SPV that will indirectly provide parametric insurance to Mexico’s Fund for Natural Disasters (FONDEN) against earthquake, Pacific hurricane and Atlantic hurricane risks. The earthquake risk coverage pools together three regions located around Mexico City.


The following table summarizes the key elements of the offering.

Summary of Multicat Mexico 2009 Notes
Issuer: MultiCat Mexico 2009 Ltd.
 

Class A:

Earthquake

Class B: Pacific

Hurricane Zone A

Class C: Pacific

Hurricane Zone B

Class D: Atlantic

Hurricane

Notional (US$)
140 million
50 million
50 million
50 million
Maturity
3 years
3 years
3 years
3 years


With this transaction, the Government of Mexico builds on its previous CatMex transaction from 2006 and paves the way for other sovereign issuers to access the cat bond market through the World Bank’s platform.

 

About the World Bank and the World Bank Treasury
The World Bank is a global development cooperative owned by its 186 member countries. Its purpose is to help its members achieve equitable and sustainable economic growth in their national economies and find effective solutions to pressing regional and global problems in economic development and environmental sustainability, all with a view to overcoming poverty and improving standards of living for people worldwide. The World Bank Treasury carries out financings and manages portfolio investments for the World Bank. It also provides banking, capital markets and asset management services to World Bank members and other public sector bodies.

The World Bank's bond products and investor presentation can be accessed through the website of the World Bank for bond investors (www.worldbank.org/debtsecurities). For a list of selected bonds issued recently by the World Bank, see: http://treasury.worldbank.org/recentissues.


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