Aon Benfield’s investment banking division has helped the World Bank structure a catastrophe bond that covers earthquakes.
The division, Aon Securities, provided the financial organization with US$1.36 billion of capital markets protection.
A release said that the bond mitigates balance sheet risk for the World Bank, particularly in Chile, Colombia, Mexico, and Peru. It is considered the second largest catastrophe bond on record and represents the largest sovereign risk transfer in the insurance-linked securities space.
The bond’s issuance was spread across five tranches of notes: one each for Chile, Colombia, and Peru, and two for Mexico. Under the issuance, Chile receives US$500 million, Colombia US$400 million, Mexico US$260 million, and Peru US$200 million.
The company said that the bond’s parametric trigger is based on US Geological Survey data. The coverage will be provided on a three-year basis for the Chile, Colombia and Peru notes. It will be on a two-year basis for the Mexico notes.
With the transaction, World Bank’s total amount of risk transfer facilitated comes to US$3.6 billion.
“We are honoured to support the Pacific Alliance members and World Bank in bringing this pioneering transaction to the market,” said Aon Securities CEO Paul Schultz. “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.”
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