New cat bond a “fundamental part” of Mexico’s disaster risk management: Suárez, Ministry of Finance

The issuance of IBRD CAR Mexico 2024, the Government of Mexico’s $420 million Mexico earthquake and Atlantic coast named storm catastrophe bond, “is a fundamental part of the federal strategy for Financial Management of Disaster Risks”, according to Héctor Santana Suárez, Head of Insurance, Pensions and Social Security in the Ministry of Finance of México.

The Government of Mexico’s new World Bank and IBRD facilitated catastrophe bond provides the country with parametric disaster insurance protection from the capital markets.

Two tranches of cat bond notes at a combined size of $295 million provide earthquake coverage, with a third $125 million tranche providing Atlantic named storm coverage.

The cat bonds, which provide financing for catastrophe insurance to Mexico for four years and leverage a parametric trigger, replace and increase by $60 million the previous cat bonds for these perils.

Mexico is very exposed to a range of natural disasters, with reportedly more than 40% of the country’s territory and nearly a third of the population being exposed to hurricanes, storms, floods, earthquakes, and volcanic eruptions.

Payouts, which will be funded by principal reductions of the cat bonds, will be passed by IBRD to the Government of Mexico through global reinsurer Munich Re, and Agroasemex, S.A., a Mexican state-owned insurer.

“The issuance of the 2024-2028 Cat Bonds is a fundamental part of the federal strategy for Financial Management of Disaster Risks and reaffirms the commitment of the Government of Mexico to increase protection to the population affected by a disaster, to safeguard macroeconomic stability and have additional resources to deal with potential external shocks caused by natural disasters,” said Suárez.

“The new coverage includes a higher insured amount, optimizes risk modeling and incorporates improvements in the exposure and parameters for the activation of the Bonds,” he added.

Today, The World Bank has revealed that the bonds attracted interest from 27 institutional investors from around the world.

The majority, or 65% of the investors were ILS funds, with asset managers or hedge funds accounting for 21%, insurers and reinsurers 7%, and pension funds also accounting for 7%.

In terms of geographic investor distribution, Europe and North America accounted for 44% each, Bermuda 10%, and then Asia / Australia 2%.

“For almost two decades, Mexico has been partnering with the World Bank to access the risk-bearing capacity of the capital markets for its disaster risk management. The continued success of these transactions is a good example for other countries we are working with, as they consider the capital markets as a resource for financial protection against unpredictable natural events,” said Jorge Familiar, Vice President and Treasurer of the World Bank.

As well as this $420 million transaction, the Government of Mexico is also sponsoring a currently $125 million Pacific coast named storm tranche of cat bond notes, IBRD CAR Mexico 2024 (Pacific), which is also on a parametric trigger basis. These Class D notes are scheduled to close in May 2024, also running across a four year term to early April 2028, Artemis understands.

For IBRD CAR Mexico 2024, GC Securities, Aon, and Munich Re were the joint structuring agents, and GC Securities and Aon were joint bookrunners. AIR Worldwide served as the risk modeller and calculation agent.

Paul Schultz, CEO, Aon Securities, said, “Aon Securities is pleased to partner with the World Bank to help the Government of Mexico bring another successful transaction to the capital markets. The Government of Mexico is very focused on activities and projects, including risk management, that generate positive impacts on society and the environment. We’re very proud to be a part of this mission and to also contribute to the Government of Mexico’s continued capital markets leadership.”

“We are delighted to have structured and placed Mexico’s catastrophe bond renewal, which provides Mexico with enhanced protection to April 2028 for Atlantic hurricanes and earthquakes affecting Mexico, demonstrating our commitment to empowering sustainable futures for Mexico. We celebrate Mexico’s almost 20-year commitment to protecting its country from the significant financial effects of Atlantic hurricane and earthquakes through the use of catastrophe bonds and partnership with the World Bank and its Capital-at-Risk Notes program,” commented Cory Anger, Managing Director, GC Securities.

Andreas Müller, Head of Global Retro and ILS, Munich Re, said, “Munich Re congratulates and is pleased that we had the opportunity to support the Mexican Secretariat of Finance and Public Credit as well as the World Bank by structuring and acting as fronting reinsurer in order to facilitate this successful capital market risk transfer.”

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