Mexico gets $420m of disaster protection with new World Bank catastrophe bond


The Government of Mexico has now secured the upsized target of $420 million of parametric disaster insurance protection against earthquakes and Atlantic hurricane through its new World Bank facilitated IBRD CAR Mexico 2024 catastrophe bond transaction, Artemis can report.

Mexico returned to the catastrophe bond market back in March, with an initial $360 million target for this new World Bank IBRD CAR Mexico 2024 issuance.

As we’ve been reporting, this new catastrophe bond will provide Mexico with disaster insurance protection against earthquakes and hurricanes on its Atlantic coast.

Where Mexico’s World Bank cat bonds had previously also covered Pacific coast hurricanes, due to the ongoing process of making a recovery from its previous cat bond after hurricane Otis, the Mexican government has elected to delay issuance of a Pacific hurricane tranche.

As we reported earlier this week, Mexico’s target for its latest catastrophe bond had been raised, with between $385 million and $420 million of protection sought.

Today, we’ve learned that Mexico’s government has now secured the upper-end target of $420 million of disaster insurance protection with its latest World Bank facilitated catastrophe bond, as the notes have now been priced and the deal size finalised.

Mexico is again using the support and facilities of the World Bank and the IBRD to secure its latest catastrophe bond cover, with the notes from this deal set to be issued by the International Bank for Reconstruction and Development (IBRD) under its global debt issuance facility and Capital-At-Risk notes program.

The new IBRD CAR Mexico 2024 cat bond will protect the country against losses from earthquakes and Atlantic hurricanes, on a parametric trigger and per-occurrence basis, with that coverage set to run across a four year term, to early April 2028.

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What was a $175 million Class A tranche of earthquake notes were updated to target between $200 million and $225 million in size and we’re now told this tranche will settle at the upper-end for $225 million of quake protection.

The Class A notes have an initial expected loss of 0.9% and were first offered to investors with price guidance in a range from 3.5% to 4.25%, but pricing has now been finalised at 4%, we understand.

What was originally a $60 million Class B tranche of riskier earthquake notes have now been priced at an upsized $70 million, we are told.

The Class B tranche of notes come with an initial expected loss of 5.84%. They were initially offered to investors with price guidance in a range from 10.25% to 11.25%, which was later fixed at 11% and this is where we understand the notes to have now priced.

The Class C tranche of Atlantic named storm notes have remained at $125 million have remained at the same size.

The Class C notes come with an initial base expected loss of 5.69% . They were first offered to investors with price guidance in a range from 12.5% to 13.5%, which was later fixed at 13.5%, so the upper-end and we’re now told this is where these notes have been priced.

The World Bank facilitated catastrophe bond program has been a lynchpin of Mexico’s catastrophe insurance arrangements over the years, with the country benefiting from a number of payouts.

In total, once the impending payout from hurricane Otis is finalised and if it stays around the assumed 50% level, we believe the government of Mexico will have benefitted from $262.5 million in disaster insurance recoveries from insurance-linked securities (ILS) and capital market investors.

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Mexico has benefited from catastrophe bond protection since at least 2006, when the CAT-Mex Ltd. parametric earthquake cat bond was issued.

This new IBRD CAR Mexico 2024 is the eighth we have listed in our Deal Directory that benefited the Mexican government’s disaster insurance arrangements.

It’s encouraging to see the Mexican government upsizing its new catastrophe bond and at $420 million with still a Pacific hurricane tranche to come in future, Mexico could even end up with more protection than its maturing and triggered by Otis $485 million IBRD / FONDEN 2020 deal.

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

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