World Bank issues $175m parametric cat bond for Mexico’s Pacific hurricane risk

Mexico has secured $175 million of additional insurance protection against named storm events occurring on the Pacific side of Mexico via a catastrophe bond transaction facilitated by the World Bank and IBRD.

With this bond, the Government of Mexico significantly expands the country’s coverage for Pacific hurricane risk from the recently expired $125 million cat bond.

This is the third cat bond the World Bank issues Mexico. Last month, the country secured a $420 million source of protection against earthquakes and Atlantic hurricanes through its new World Bank facilitated IBRD CAR Mexico 2024 catastrophe bond transaction.

These bring Mexico’s overall insurance coverage supported by the cat bond market in 2024 to $595 million.

Jorge Familiar, Vice President and Treasurer of the World Bank, stated: “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.”

The most recent cat bond has been once again issued under the International Bank for Reconstruction and Development (IBRD) under its Capital-At-Risk notes program, which can be used to transfer risks related to natural disasters and other risks from developing countries to the capital markets.

Having attracted 22 institutional investors from around the world, the cat bond provides financial protection to Mexico for four years.

Payouts work on a parametric trigger basis. In this case it would trigger when a named storm and hurricanes along the Pacific coast meets the criteria for location and severity set in the bond terms.

Through the intermediation of global reinsurer Munich Re, the IBRD issuer will pass on the reinsurance to AGROASAMEX, the Mexican government insurer, which in turn will pass on the coverage directly to the Mexican governments Secretary of Treasury and Public Credit.

Héctor Santana Suárez, Head of Insurance, Pensions and Social Security in the Ministry of Finance of México, said: “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.”

He added: “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.”

Andreas Müller, Head of Global Retro and ILS, Munich Re: “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.”

GC Securities, a division of MMC Securities LLC, Aon, and Munich Re were the joint structuring agents. GC Securities and Aon were joint bookrunners for the transaction. AIR Worldwide is the risk modeller and calculation agent.

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