MANILA, Nov. 25 (Xinhua) -- The World Bank said on Monday it has issued two tranches of catastrophe-linked bonds (CAT bonds) in order to provide the Philippines with financial protection of up to 75 million U.S. dollars for losses from earthquakes and 150 million U.S. dollars against losses from tropical cyclones for three years.
The World Bank said the bonds were issued under the International Bank for Reconstruction and Development or IBRDs "capital at risk" notes program, which can be used to transfer risks related to natural disasters and other risks from developing countries to the capital markets.
Payouts will be triggered when an earthquake or tropical cyclone meets the predefined criteria under the bond terms, the statement said.
According to the World Bank, the Philippines is among the most disaster-prone countries in the world. In 2013, it said Typhoon Haiyan resulted in the loss of 6,300 lives and caused an estimated 12.9 billion U.S. dollars in damages, or about 4.7 percent of the Philippines' gross domestic product (GDP).
"Many countries in Asia are highly vulnerable to natural disasters, which makes finding innovative, capital markets solutions a major priority to address the impact on their economies," World Bank Vice President and Treasurer Jingdong Hua said.
"The World Bank CAT bonds for the Philippines are the first to be sponsored by the government of an Asian country and the result of a close and long-term partnership between the World Bank and the Philippine government," he said.
"The World Bank has been working with the Philippine government for the last eight years to help strengthen the country's resilience against natural disasters," said Mara Warwick, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand.
Through the intermediation of the World Bank, she said that these CAT bonds allow the Philippines to transfer natural disaster risks to the capital markets while enabling the authorities to respond quickly to the needs of citizens when calamities strike.
"This once again demonstrates the Philippines' capability to develop innovative financial solutions to mitigate impacts of extreme climate and weather-related events as well as major earthquakes," Warwick said.
Rosalia de Leon, national treasurer of the Philippines, said the bonds will address the financing gap for immediate post-disaster needs for extremely high-risk events. "It complements the government's existing disaster risk financing mechanisms designed to ensure comprehensive financial protection for the Philippines," she added.
The Philippines is one of the most disaster-prone countries in the world. This southeast Asian country has frequent seismic activity due to its location along the Pacific "Ring of Fire," registering quakes everyday, though most are not felt. The Philippine Institute of Volcanology and Seismology records an average of 20 earthquakes a day and 100 to 150 earthquakes are felt per year.
Meanwhile, an average of 22 tropical cyclones enter the Philippines of which around six to seven cause significant damage or destruction annually.