Willis Towers Watson Public: Designs a “World First” Parametric Solution to Help Strengthen the Resilience of Sovereign Borrowers to Climate Shocks
LONDON, December 20, 2021 – Willis Towers Watson designed and funded the world’s first parametric insurance transaction helping enable the revolutionary restructuring of Belize government debt for marine conservation. Underwritten by reinsurer Munich Re, insurance protection has played a crucial role in enabling Belize to refinance its sovereign debt under The Nature Conservancy’s (TNC) Blue Bonds for Ocean Conservation program.
TNC’s $ 364 million transaction with Belize was supported by Credit Suisse as the sole structuring bank and funding arranger, and the US International Development Finance Corporation as the provider of political risk insurance.
Willis Towers Watson created the world’s first sovereign debt âdisaster wrapâ for this transaction, which provides insurance protection to cover Belize’s loan repayments after the hurricanes. The envelope around the 20-year sovereign debt structure strengthens sustainability and resilience to climatic shocks that have previously triggered credit rating downgrades that have exacerbated economic woes.
Dr Simon Young, Senior Director of the Climate and Resilience Hub at Willis Towers Watson, is an expert in parametric insurance and led the design of the disaster envelope. Dr Young said: âVolcanoes, earthquakes and hurricanes repeatedly disrupt economic development in the Caribbean region, of households and communities at the sovereign level. This disruption leads to higher debt and a longer, more painful path to recovery.
The Parametric Envelope is a game-changer for the financial resilience of island and coastal nations and will help unlock funding for nature-based solutions. ”
Dr Simon Jeune | Senior Director at Willis Towers Watson’s Climate and Resilience Hub
“The Parametric Envelope is a game-changer for the financial resilience of island and coastal nations and will help unlock funding for nature-based solutions to achieve global net zero and biodiversity goals.”
The parametric insurance transaction was marketed and placed by Willis Towers Watson’s Alternative Risk Transfer team, with competitive pricing achieved in a tough market for Atlantic hurricane risk. Munich Re provided the best terms and obtained 100% of the placement, which covers the first 31 months of the bond term.
Belize’s economy, heavily dependent on tourism, contracted by 14.1% in 2020. In March 2021, the IMF noted that “building resilience to climate change and natural disasters would reduce the volatility of the economy. production and stimulate growth “and recommended that the authorities develop a comprehensive disaster resilience program. Strategy that includes insurance.
As part of Belize’s debt restructuring program, Belize repurchased its only international bond with a principal amount of $ 364 million arranged by The Nature Conservancy and insured by the International Development Finance Corporation. This commitment enabled Belize to restructure about US $ 553 million in external commercial debt – an amount that represents 30 percent of the country’s GDP – and reduce the national debt by 12 percent.
The transaction is backed by the proceeds of a âblue bondâ arranged by Credit Suisse. This includes pre-funding a $ 24 million endowment to support future marine conservation projects, as well as a commitment by Belize to protect 30% of its waters by 2026 and fund approximately $ 4 million per year. in an independent national conservation fund.
As global development finance institutions consider integrating climate risks into their traditional sovereign lending programs, the Willis Towers Watson placement is seen as a model of integrated protection for creditors and issuers. The Parametric Envelope uses objective rather than subjective criteria to trigger benefits – which reassures creditors – and prepay for disaster debt service relief, rather than simply extending the repayment schedule. . The agreement also reinforces recommendations made in a new Cambridge Institute for Sustainability Leadership report, with input from financial regulators and policymakers, that climate insurance should be integrated into sovereign debt systems.
The placement is the latest result of Willis Towers Watson’s Global Ecosystem Resilience Facility (GERF), launched in 2018, which has led the protection of natural assets, including coral reefs, mangroves and forests.
Kevin Bender, Senior Director of Sustainable Debt at The Nature Conservancy (TNC), said: âMany coastal and island countries have three closely related characteristics: economic dependence on their precious natural resources, greater exposure to the adverse effects of climate change and In order to help solve the conservation finance needs of these countries, we also need to resolve a complex web of financial risks. The disaster envelope designed by Willis Towers Watson for the Belize transaction is a brand new solution that fills a necessary large gap. ”
Michael Roth, Head of Public Sector Practice in the Capital Partners team at Munich Re, said: âParametric insurance will be a powerful tool for borrowing countries affected by natural disasters to benefit from financial assistance. through a temporary debt service waiver. By reducing credit risk to sovereign lenders, borrowing countries can improve access, as well as the terms and conditions of debt financing. The Blue Bond transaction combines nature conservation, risk reduction, sovereign financing and risk transfer in a unique way. We hope that the bespoke blue bond transaction will only be the starting point for more environmentally friendly and shock-resilient sovereign bonds and loans. ”
About the Climate and Resilience Pole
The Climate and Resilience Hub (CRH) is the focal point of our climate expertise and capacities, pooling the knowledge of all our employees, our risk and capital activities and our collaborations to provide climate and climate solutions. resilience in response to a range of regulations, investors, consumer, employee and operational pressures. Under the Quantified climateMT brand, we provide analytics, advice and transactions to empower businesses, finance and public sector institutions to embrace the coming climate decade.
About Willis Towers Watson
Willis Towers Watson (NASDAQ: WLTW) is a leading global consulting, brokerage and solutions firm helping clients around the world turn risk into growth. With roots dating back to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, maximize rewards, cultivate talent, and increase the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talents, assets and ideas – the dynamic formula that drives business performance. Together, we unleash the potential.