Mexico targets upsized $150m-$175m Pacific named storm cat bond

The Government of Mexico is looking to upsize its Pacific named storm protection from its latest tranche of World Bank and IBRD facilitated catastrophe bond notes, with now up to $175 million in parametric disaster insurance protection sought from the deal.

Recall that Mexico has already secured $420 million in protection against earthquakes and Atlantic hurricanes from the capital market, through its recently placed World Bank facilitated IBRD CAR Mexico 2024 catastrophe bond transaction.

As we’d reported, due to the ongoing process of making a recovery from its previous cat bond after hurricane Otis, the Mexican government had elected to delay issuance of a Pacific hurricane tranche this time around but was expected to renew it when the time was right.

That additional tranche of protection emerged earlier this month, with the Mexican government seeking to sponsor issuance of $125 million of notes to provide the country with disaster insurance protection against Pacific named storms on a parametric trigger basis.

Now, we’re told that the target size for this new Pacific named storm cat bond for Mexico has increased, with between $150 million and as much as $175 million of protection now being sought.

At the same time as the target size has been increased, we’re told that price guidance has been raised to the top of the original range.

The now up to $175 million of Pacific named storm notes will offer Mexico protection based on a per-occurrence basis using a parametric trigger, with the coverage running across a four year term, to early April 2028.

The Pacific named storm parametric trigger features a linear payout factor from 25% upwards, depending on the parameters of location and minimum central pressure.

Global reinsurance firm Munich Re will front the capital markets, so will enter into a retrocessional agreement with the IBRD issuer and then pass on that reinsurance protection to AGROASAMEX, which is the Mexican government insurer, that in turn passes on the coverage directly to the Mexican governments Secretary of Treasury and Public Credit.

The Class D notes come with an initial expected loss of 4.09% and were first offered to investors with price guidance in a range from 11% to 12%, but we’re now told that guidance has been lifted to the upper-end at 12%.

It’s encouraging that Mexico looks set to upsize on the Pacific named storm protection it receives through its World Bank cat bonds.

The tranche of notes that were recently triggered by hurricane Otis and are presumed to be paying out ~50% were only $125 million in size, so it appears the Mexican government will come away from its catastrophe bond renewal with much more protection in place.

That whole IBRD/ Fonden 2020 issuance was only $485 million in size, where as Mexico has already secured $420 million of protection against Atlantic named storms and earthquakes, so adding this new Pacific tranche will take the overall Mexico cat bond cover to between $570 million and $595 million over the next four years.

You can read all about this IBRD CAR Mexico 2024 (Pacific) catastrophe bond and more than 1,000 other cat bond transactions in the extensive Artemis Deal Directory.