Asian Development Bank Advances Cat Bond Foray in Central Asia

Novel bond backing earthquake and flood protection in Kyrgyz Republic and Tajikistan said to be on track for $100 million.

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The Asian Development Bank has moved closer to delivering the first disaster and climate risk transfer facility focused on Central Asia, with a planned parametric catastrophe bond envisioned for the region's smallest countries, mountainous Tajikistan and the Kyrgyz Republic.

ADB first laid out its intentions for the region in a Technical Assistance Report about a year ago, following in the footsteps of global IFIs' recent efforts to better address climate risks in emerging and frontier markets through so-called cat bonds (one of the which, from the World Bank, is likely to payout following damage from Hurricane Melissa in Jamaica).

The facility's total value is expected to top out at $100 million, and will take a comprehensive approach to supporting social resilience disaster response with local governments, rather than covering property alone. The initial ADB allocation of funds will cover their risk premium in the buildup to issuance.

OQ View: Many of the performance details and timeline to market remain to be finalized; however ADB's progress suggests continued momentum for insurance-linked securities as a public vehicle for EM risk transfer.

Before recently, the vast majority of previous issuances in the niche asset class have focused on commercial reinsurance in North America and Western Europe; now its more diverse applications are becoming better understood by institutional investors.