The World Bank has issued its biggest ever catastrophe bond — a  $1.4bn cat bond designed to cover Peru, Mexico, Chile and Colombia in the event of earthquakes.

Earthquakes in Mexico last year contributed to the worst year on record for insurance losses from natural catastrophes.

The is the biggest transfer of natural catastrophe risk from sovereigns to the financial markets, according to the World Bank.

Arunma Oteh, World Bank vice president and treasurer, said:

“Helping our client manage risk and build resilience against natural disasters is a strategic priority for the World Bank. This historic transaction cements the World Bank’s role as a pioneer in leveraging capital market instrument to build resilience, and showcases our unique ability to bring together sovereigns for a market transaction that transfers risk and will help support countries when the unforeseen does occur.”

Jorge Familiar, World Bank vice president for Latin America and the Caribbean, added:

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When there are people just one disaster away from poverty, managing risk is a development priority. These Pacific Alliance catastrophe bonds are an example of the innovative contributions that stem from the Bank’s partnership with Latin America and the Caribbean.

The issuance provides $500m in earthquake risk protection for Chile, $400m for Colombia, $260m for Mexico and $200m for Peru.

Chile, Colombia and Peru will all benefit from three years of earthquake insurance protection from their cat bonds, while Mexico will have two years of coverage.

According to Aon Securities, a record $11bn of cat bonds were issued in 2017 across 45 transactions. The previous record was $8.4bn in 2007.

Aon Securities, the investment banking division of capital adviser Aon Benfield helped structure the bond.

Paul Schultz, CEO of Aon Securities, said:

We are honoured to support the Pacific Alliance members and World Bank in bringing this pioneering transaction to the market. This record-breaking issuance highlights the strategic partnership between nations seeking efficient sources of capital to fund emergency costs and investors seeking to invest in diversifying risks and support sustainable development initiatives.

We are optimistic that this transaction will pave the way for other governments to develop more resilient risk management programs for their uninsured exposures.