World Bank aiming for first drought catastrophe bond, says Reuters

The World Bank is reportedly aiming to issue its first drought catastrophe bond over the next 12 – 18 months, which would most likely be focused on Africa, George Richardson, director of the capital markets and investment department at the World Bank Treasury, told Reuters.

The publication has reported a number of times that The World Bank, which has now facilitated more than US $4.8 billion in cat bonds across 17 transactions, is exploring the issuance of its first bond to provide protection against the impacts of drought.

So far, the transactions issued by The World Bank via its lending arm, the International Bank for Reconstruction and Development (IBRD), have covered earthquake and wind risks in the Caribbean, Mexico, and South America, alongside one pandemic bond in 2017.

So, the issuance of a drought bond would expand its cat bond offering, introducing a new peril and region to its financial support efforts for countries vulnerable to catastrophe and weather events.

“We would love to do something in the drought space, that is something we are working on,” Richardson told Reuters, who also note that The World Bank director revealed this would most likely be focused on Africa, a region highly susceptible to severe drought conditions.

One of the challenges with perils such as drought, as highlighted by Richardson, is the modelling, which is more difficult than earthquakes or storms, for example.

“The fundamental challenge is that you need data, and you need to have some history of that so that it can be modelled by various agencies,” Richardson told Reuters.

The World Bank has become a significant facilitator and issuer of catastrophe bonds to the benefit of countries around the world, and its willingness to expand its offering to more regions and perils is promising for the world’s poorest and most vulnerable.

Parts of Africa have been reeling from severe drought conditions in recent times, and with global temperatures breaking records, it’s very possible that drought conditions around the world increase in both frequency and severity.

You can find details of every World Bank issued or facilitated catastrophe bond in our extensive Artemis Deal Directory.