The United Nations World Food Programme (WFP) is progressing a plan to become the first to utilise catastrophe bonds for food security financing, in a novel transaction that would see it become the first UN agency to sponsor a cat bond, with a target to source up to $100 million in risk transfer to boost drought resilience in Sub-Saharan Africa.This drought catastrophe bond, dubbed a food security catastrophe bond by the WFP, would be groundbreaking for a number of reasons.It would mark the first catastrophe bond to benefit a UN organisation directly, with the WFP positioned to be the insured party.It would also mark the first cat bond to directly seek to cover drought related risks, a new peril for the reinsurance capital markets.

In addition, it appears this would be expected to be multi-country in nature, with the targeted area for coverage being Sub-Saharan Africa, a region that has not seen cat bonds utilised for protection against any other peril.The UN World Food Programme has been exploring catastrophe bonds under its Innovation Accelerator initiative for around two years now, but the project is becoming increasingly formalised with service providers such as insurance-linked securities experienced law firms now being on-boarded to assist with legal structuring in the development of a drought cat bond, we understand.The World Food Programme (WFP) is working on the food security catastrophe bond with the World Bank and with funding support from Luxembourg.

Back in 2024, the Government of Luxembourg provided EUR 1.5 million in funding to support the design of the food security cat bond, while the WFP has also entered into a design services agreement with the World Bank to develop the structure.The plan was to have the first food security cat bond issued in late 2025 or early 2026.We understand, as is often the case, the project timeline has taken longer than originally anticipated, but it remains in the works and meaningful progress has been made, according to sources.

The goal is to share in some of the costs of responding to extreme droughts that cause food insecurity, with traditional donor funding seen as insufficient to meet the response and likely to become increasingly insufficient over-time, as drought conditions are exacerbated by extreme weather and climate related conditions.Extreme weather has become the leading cause of food insecurity in most years for the most affected countries in particular, with upwards of 72 million people seen affected.Twelve of the worst affected countries are in Africa, hence the WFP’s focus for the food security cat bond will be on that continent to begin.

The UN and WFP is turning to new forms of financing to support the work it undertakes and to mobilise greater resources and capital liquidity in response to the drought threat and its role in lowering food security.Insurance-linked securities, specifically catastrophe bonds, are seen as a mechanism that can transfer the risk of WFP resources being significantly stretched in the event of a severe drought in the Sub-Saharan region of Africa, with a drought catastrophe bond seen as the instrument best suited to reduce the funding gaps created by climate-related disasters that affect the region and drive drought conditions.Pre-arranged disaster risk financing, such as cat bonds or parametric insurance, are increasingly viewed as mechanisms that can enable organisations responding to disaster and climate events to tap just-in-time funding sources, diversifying their funding with the help of insurance and reinsurance technology and the depth of funding available from capital market investors.

We understand that the idea is for the World Bank Treasury to be the catastrophe bond issuer, presumably through its International Bank for Reconstruction and Development (IBRD) Capital-At-Risk notes program, while the UN World Food Programme would be the beneficiary of the insurance protection from the food security cat bond.It’s possible an intermediating reinsurance company could also sit in between, as has been seen in certain other World Bank cat bonds.We’re told initial risk modelling work has been undertaken, although we’re not sure if this is internal or through an recognised service provider, while it is believed the risk-return pay-off of sponsoring a catastrophe bond will be viable and it’s understood investor soundings suggest there would be appetite for a drought cat bond, should it hit the market.

As the WFP seeks to bolster the help and support it can give to communities around the world, additional funding sources are becoming critical.Tapping the capital markets is one way to support the liquidity needed to respond to major events, with cat bonds a viable instrument when it comes to weather and climate linked events such as droughts.Any food security catastrophe bond would enable the UN and WFP to access much-needed liquidity rapidly after an event, which can help them to respond better and faster to support those in need when drought occurs.

By transferring the risk to private investors, a humanitarian organisation like the WFP can lock-in predictable financing, while the likely use of parametric triggers of some kind means payouts can be relatively rapidly accessed as well.We’re told up to $100 million of funding is likely to be sought through a first food security catastrophe bond, should the UN WFP and World Bank’s work result in an actual offering.The goal will be to cover as many as 2.5 million people across the Sub-Saharan region of Africa, we understand.

Ultimately, a parametric food security catastrophe bond would provide responsive catastrophe insurance for extreme weather and climate-related drought events, raising resilience and supplying much-needed funding to support the response.Drought catastrophe bonds and food security risk transfer use-cases have been on the radar at the World Bank for more than a decade, we mentioned it and it came to light again most recently in 2024.There has long been an ambition to turn the catastrophe bond use-case to issues linked to food security and drought, with multi-lateral and humanitarian organisations recognising that donations are not going to provide the kind of capital liquidity needed to respond to the most severe events.

As such, it is encouraging to learn that the World Food Programme is making good progress with its food security cat bond plans and we suspect the ILS market response would be positive at this time, given this would introduce a new diversifying peril and an offering that would have strong responsible investment credentials as well..All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.Our can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.