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World Bank issues $1.36B earthquake catastrophe bond for 4 LatAm countries

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World Bank issues $1.36B earthquake catastrophe bond for 4 LatAm countries

The World Bank launched a $1.36 billion earthquake catastrophe bond covering Chile, Colombia, Mexico and Peru, according to Aon Securities.

Aon Benfield's Aon Securities assisted the World Bank in the structuring of the bond, which will provide earthquake protection to the four countries on a parametric basis, i.e. when an event occurs that meets a defined threshold.

The issuance is the largest-ever insurance-linked security covering earthquake risk; the second-largest catastrophe bond of all time; and the largest transfer of sovereign risk via the ILS market. It comprises five tranches, two covering Mexico and one each for the remaining three countries.

The tranches for Chile, Colombia and Mexico total $500 million, $400 million and $260 million, respectively, while Peru's tranche totals $200 million. The bond provides coverage for three years to Chile, Colombia and Peru, while Mexico will have two years of earthquake insurance protection.

The bond brings the World Bank's total amount of facilitated risk transfer transactions to $3.6 billion. The institution recently launched a similar $1 billion earthquake catastrophe bond covering the same countries in January.

Aon Securities, which comprises Aon Securities Inc. and Aon Securities Ltd., is a wholly owned subsidiary of Aon Plc.