Jamaica’s holistic disaster risk financing (DRF) strategy provided enough access to funding following the impacts of Hurricane Beryl, according to Conor Meenan, Lead Risk Finance Adviser at the Centre for Disaster Protection, despite the World Bank facilitated $150 million parametric IBRD CAR Jamaica catastrophe bond not being triggered.
Jamaica was battered by the passage of Hurricane Beryl just off its southern coast in July 2024, with damage even reaching into the capital of Kingston.Although Beryl caused damage and disruption in the south of Jamaica, Meenan noted that it could have been far more costly had the hurricane made direct landfall or affected more populated areas with greater public infrastructure.
When Beryl approached Jamaica as a Category 5 storm, investors in Jamaica’s catastrophe bond monitored the National Hurricane Centre (NHC) event observation data to analyse if it would cause a parametric payout.
However, as the major hurricane bypassed to the south of Jamaica, it became apparent that its reported location and central pressure measurements were not sufficient to trigger a payout from the cat bond.
“The catastrophe bond trigger is designed to issue payouts for events that cause losses expected to occur at a return period of 1-in-42 years (based on the modelled annual attachment probability of 2.34% of the cat bond),” Meenan explained.
“Based on PIOJ assessments of damage and loss as a function of GDP, Beryl is Jamaica’s fifth most impactful storm of the past 25 years, so has a historical return probability of 1-in-5 over this period. This basic analysis does not account for improvements in vulnerability or changes in exposure through time and is not based on enough data to get an accurate view of the actual return period estimate of Beryl’s severity,” he continued.
This suggests that Beryl’s severity was lower than the minimum threshold that the $150 million IBRD CAR Jamaica 2024 cat bond was designed to protect against.
“In other words, since the historical return period of Beryl’s losses is so much lower than the modelled attachment period of the catastrophe bond, even with conservative assumptions, it looks like Beryl wasn’t severe enough to warrant a payout from the catastrophe bond layer,” Meenan added.
It’s important to note, that during public communications following Beryl, the Ministry of Finance stressed that Jamaica intentionally uses a multi-layered set of financial instruments, indicating that while “… it is neither expected nor designed that all storms will trigger all instruments, the idea is that we should always be able to access resources from some instruments for every storm.”
“This external communication clearly doesn’t reflect the full range of views on the catastrophe bond from within the government, and it would, of course, have been preferable for Jamaica had the cat bond delivered a fast return on investment, but in the sense that basis risk reflects the difference between the triggered outcome and the expectation of the policy holder, these sorts of comments suggest that at least from the perspective of the government, Beryl does not represent a basis risk event for the catastrophe bond,” Meenan noted.
As previously mentioned, even without the cat bond triggering, the funding available through other instruments in Jamaica’s DRF strategy was more than sufficient to cover the higher estimates of total damage and loss from the hurricane.
“The triggered instruments include US$207 million the IDB contingent credit line, which was eligible for disbursement, but appears not to have been drawn down by Jamaica. The fact that the DRF strategy provided access to enough pre-arranged funding even without the cat bond triggering also suggests that collectively, Jamaica’s DRF strategy performed well in response to Beryl,” Meenan said.
Adding: “On its own, the fact that other instruments triggered doesn’t confirm that this wasn’t a basis risk event for the cat bond, but collectively, it does suggest that Jamaica’s risk financing strategy worked as it needed to.”
There has been negative mainstream press regarding Jamaica’s $150 million IBRD catastrophe bond not being triggered by the passage of Beryl close to the island. But, it’s important to remember, that Jamaica had a well-designed disaster insurance tower which the IBRD cat bond was the upper-layer of.
Also, given that other risk transfer and financing amounted to a level higher than the damage that was actually suffered from the hurricane, this shows that the catastrophe bond not triggering was likely the correct outcome and as a result the cat bond continues to provide vital protection for the coming hurricane seasons through until the end of 2027.
We had reported last year that Jamaica’s Minister of Finance Dr. Nigel Clarke had highlighted that not every risk transfer instrument was designed to trigger for every storm event.
