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IBRD Financial Products

Disaster Risk Management

  • Why Do Clients Need to Manage their Disaster Risk?

    Natural disasters have a considerable impact on economies, putting lives at risk, and threatening economic stability and growth.

    Developing countries are significantly more vulnerable due to weaker building codes, denser cities, and less insurance coverage.

    When natural disasters strike, most developing country governments experience a significant fiscal burden and need to reallocate budget resources to finance disaster response and recovery efforts. 

    How does World Bank support clients?

    The World Bank helps clients increase their financial resilience to disasters by supporting disaster risk financing programs and offering insurance solutions.

    The Bank assists clients in designing, developing, and executing comprehensive disaster risk financing strategies.  A risk financing strategy helps clients determine a balance between retaining the risk, for example, through a contingent financing product and transferring risk, for example, through an insurance product.

    A range of financial products can be used to address the financial risks of natural disasters, and the optimum mix of approaches depends on the types of risks faced by a client and the frequency and severity of disaster events.

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    Why choose the World Bank Treasury for disaster risk insurance?

    Leveraging its 70+ years of experience in the international markets, the World Bank has executed highly successful insurance and catastrophe bond transactions for clients.

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  • What is the Disaster Risk Insurance Platform?

    The World Bank Treasury Disaster Risk Insurance Platform provides clients with advisory support and risk transfer solutions (insurance, derivatives, and catastrophe bonds) offering financial protection against a wide range of shocks: droughts, floods, tropical cyclone, earthquake, tsunami, pandemic and other types of insurable perils.

    How does the Disaster Risk Insurance Platform work?

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    The Platform provides:

    • Advisory services to build client’s capacity to understand risk transfer products and options, and transfer risk to international markets; and
    • Executions services to transfer the client’s risk to insurance and capital markets.

    Implementing insurance, derivative, and catastrophe bond programs can present serious challenges due to the complexity of the underlying statistical models, legal documentation, procurement constraints, and market dynamics and the Platform helps clients overcome these barriers. 

    Advisory Services

    Advisory services provided by the World Bank Treasury help clients build capacity for implementing disaster risk financing solutions. Services are often provided in collaboration with the Disaster Risk Financing and Insurance Program (Finance Competitiveness and Innovation Global Practice), Disaster Risk Management (Social, Urban, Rural and Resilience Global Practice), and other Bank experts. 

    Advisory services are provided by both in-house experts and external service providers, such as catastrophe risk modeling agencies, legal counsel, and structuring agents. Services can be financed through Trust Funds, Reimbursable Advisory Service (RAS), lending operations, or the Government’s own funds, among other sources.

    The World Bank helps clients understand different risk transfer options and engage with relevant counterparties:

    • Training on risk transfer options including traditional insurance, derivatives, and catastrophe bonds
    • Evaluating risk transfer options relative to a client’s limitations or preference from a legal, regulatory or budget perspective
    • Procuring catastrophe risk modeling services to develop amongst others a (i) credible and transparent view of the underlying risk, (ii) sample risk transfer structures, and (iii) evaluation of the costs of risk transfer products
    • Procuring external service providers to support the structuring of risk transfer execution
    • Preparing and supporting clients with the key decisions regarding the legal, technical and financial requirements of a transaction

    Execution services

    The World Bank Treasury provides market-based insurance solutions to clients. It provides clients with liquidity after a pre-defined disaster event without increasing a client’s debt. A client’s only counterparty is the World Bank, which stands between clients and the markets. Any credit risk from market counterparties is retained and managed by the World Bank.

    The World Bank enters into an insurance or derivative agreement with clients, providing financial protection that fits within their legal and regulatory framework. The agreement guarantees clients a payout upon the occurrence of a pre-defined event.  In exchange, clients agree to make insurance premium payments to the World Bank.

    The World Bank simultaneously transfers clients’ risk to insurance and capital markets, through reinsurance, derivative, or catastrophe bond solutions. The World Bank agrees to make premium payments to the insurance or capital market in line with the insurance premium payments under the client’s contract. Upon the occurrence of a pre-defined event, the World Bank receives payouts from market counterparties in line with those due to the client under the client’s contract.

    The World Bank Treasury handles, in consultation with the client, the selection, structuring, and all documentation issues with the markets. 

     

  • The World Bank offers clients a contingent financing product for addressing disaster risk, namely the Development Policy Loan with a Catastrophe Deferred Drawdown Option (DPL Cat DDO). The product is available to both IBRD and IDA countries under different terms. The CAT DDO allows borrowers to prepare in advance by securing access to finance before a disaster (natural or health-related) strikes. Typically, funds are available for disbursement immediately after a disaster strikes.

    What is a DPL Cat DDO?

    The DPL Cat DDO is a contingent credit line that provides immediate liquidity to IBRD and IDA member countries in the aftermath of a natural or health-related disaster.

    It serves as early financing, while funds from other sources such as bilateral aid or reconstruction loans are being mobilized. DPL CAT DDOs enhance countries’ capacity to plan for and manage crises by securing access to financing before disaster strikes. It is approved prior to the disaster and disburses quickly once the event occurs, and the drawdown trigger is met.

    To gain access to the DPL Cat DDO, the recipient must (i) have an adequate macroeconomic policy framework; and (ii) be preparing, or already have, a satisfactory disaster risk management program, which the World Bank will monitor periodically.

    It is most effective as part of a broader risk financing strategy in countries exposed to natural disasters. The Cat DDO may be complemented by disaster risk transfer instruments such as insurance or catastrophe bonds. The mix of disaster risk financing instruments should be determined based on an assessment of risks, desired coverage, available budget, and cost-efficiency.

    How does a DPL Cat DDO work?

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Disaster Risk Insurance Platform: Insurance Solutions for World Bank Clients

The World Bank helps clients increase their financial resilience to disasters by supporting disaster risk financing programs and offering insurance solutions.

Disaster Risk Financing E-learning

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