Mexico “setting the standard” with use of World Bank catastrophe bonds

With the successful issuance of the $175 million IBRD CAR Mexico 2024 (Pacific) named storm catastrophe bond, on the heels of the $420 million IBRD CAR Mexico 2024 that provides Atlantic named storm and earthquake protection, Mexico now has $110 million more in disaster risk financing to support its resilience, Héctor Santana Suárez of the Ministry of Finance of México has said.

“Mexico is setting the standard for disaster risk management by using innovative financial tools like World Bank cat bonds to safeguard public funds from the effects of natural disasters,” Mark Roland Thomas, World Bank Country Director for Mexico explained.

With the previous IBRD / FONDEN 2020 catastrophe bond only $485 million in size, the renewal of this coverage has now expanded to $595 million thanks to strong investor support for Mexico’s latest World Bank issued catastrophe bonds.

On Pacific hurricane risk alone, the new cat bond has upsized protection by $50 million over the previous cat bond, while for Atlantic hurricanes the coverage remained at $125 million with the new deal.

For earthquake risk, with the cat bond renewal Mexico now has $295 million in disaster risk financing available from the cat bond renewal, so much more protection than the matured $235 million of quake cover from the 2020 cat bond.

Héctor Santana Suárez, Head of Insurance, Pensions and Social Security in the Ministry of Finance of México, commented, “The renewal and expansion of hurricane cover for the Pacific coast demonstrates the Government of Mexico’s commitment to be prepared financially for natural disasters. Together with the recent earthquake and Atlantic cat bonds issued by the World Bank, this cat bond increases Mexico’s resilience against future events by $110 million compared to the cat bond cover which was previously in place.

“The insurance arrangements supported by the World Bank cat bonds compliment Mexico’s other disaster risk financing instruments, and are a fundamental part of the federal strategy for Financial Protection of Disaster Risks presented by the Minister of Finance for Mexico, Rogelio Ramírez de la O, as evidenced by the $60 million hurricane Otis payout received by Mexico through the previous cat bond.”

Jorge Familiar, Vice President and Treasurer of the World Bank, added, “The issuance of this $175 million cat bond, the fourth tranche provided to Mexico for disaster risk coverage, brings the nation’s total insurance protection through World Bank cat bonds to $595 million.

“This significant uptake in size strengthens Mexico’s financial protection against natural disasters. Our cat bond program is a testament of our innovative approach to leveraging the capital markets for the benefit of our member countries.”

In total, 22 institutional investors supported the issuance of the Pacific hurricane tranche of cat bond notes for Mexico, which provides $175 million of multi-year parametric disaster insurance protection to the country.

Of the investors backing the Pacific hurricane tranche of notes, 47% were from the United States, 28% from Europe, 23% from Bermuda and 2% from Asia and Australia.

The investor base for the notes consisted of 73% specialist ILS funds, 13% insurance and reinsurance firms, 10% asset managers or hedge funds, and 4% direct pension fund investors.

Commenting on the successful structuring and placement of Mexico’s latest catastrophe bond, Paul Schultz, CEO Aon Securities said, “Following the successful placement of the Atlantic Hurricane and Earthquake tranches earlier this year, Aon Securities is proud to again partner with the World Bank to help the Government of Mexico secure critical Pacific hurricane protection. This placement and related insurance arrangement forms an important part of the Government of Mexico’s risk management strategy for natural disasters, which aims to protect the population, reduce fiscal exposure, and contribute to the government response.

“Further, the proceeds from the notes will be used by the World Bank to finance eligible sustainable development projects, which are designed to achieve positive social and environmental impacts and outcomes.

“The social objectives of the Government of Mexico and the World Bank are of utmost importance to Aon Securities, and we’re proud to be a part of the impact they create.”

Cory Anger, Managing Director, GC Securities also said, “We are honored to have completed the last part of the World Bank’s Mexico-related catastrophe bond renewal supporting the Government of Mexico through the issuance of the World Bank Class D Notes.

“Given Mexico and the World Bank’s commitments to consistently protect Mexico from natural peril catastrophes, this transaction demonstrates the sustainable partnership of insurance-linked securities (ILS) investors to support recent loss-affected regions with expanded capacity.”

Andreas Müller, Head of Global Retro and ILS at Munich Re also commented, “Munich Re is pleased to see the Government of Mexico and the World Bank successfully complete and upsize the capital market transaction with a volume of $175 million for Mexico’s hurricane protection on the Pacific coast.

“Taking into account the already placed cat bond classes A, B and C, the aggregate transaction volume amounts to nearly USD 600 million which is a great success. Munich Re is happy and proud to be part of this transaction and would like to thank all involved parties for making this possible.”

You can read all about the $420 million IBRD CAR Mexico 2024 cat bond that provides Atlantic hurricane and earthquake protection and this $175 million IBRD CAR Mexico 2024 (Pacific) named storm catastrophe bond, as well as more than 1,000 other cat bond transactions in the extensive Artemis Deal Directory.