Rescue workers and volunteers search a building that collapsed after an earthquake in the Roma neighborhood of Mexico City. © AP

The World Bank has issued its biggest ever catastrophe bond, providing earthquake cover to Peru, Mexico, Chile and Colombia.

The $1.4bn bond is the biggest transfer of natural catastrophe risk from sovereigns to the financial markets, according to the World Bank.

Catastrophe bonds (or cat bonds) are an increasingly popular way for governments to pass on the risks of huge natural disasters. They often pay out as soon as the disaster hits, allowing the governments to get help quickly to the areas that most need it.

The governments pay an annual coupon and, if there are no disasters, the bonds are repaid at the end of the period.

The latest World Bank bonds provide cover for three years to Colombia, Chile and Peru, and two years to Mexico. They are triggered by earthquakes, as measured by the US Geological Survey.

For investors, cat bonds can offer returns that are not correlated with financial markets. The World Bank says that its latest bond is backed by 45 investors, and that there were almost $2.5bn of investor orders.

Interest in cat bonds has been growing strongly as investors cast their nets wider in search of returns. 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.

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