On May 15, 2024, the World Bank (International Bank for Reconstruction and Development, or IBRD) issued a new catastrophe bond to provide $175 million of additional insurance protection for the Government of Mexico against named storm events occurring on the Pacific side of Mexico. This issuance significantly expands Mexico’s coverage for Pacific hurricane risk from the recently expired $125 million catastrophe bond.
Together with three other catastrophe bonds issued by the World Bank for Mexico last month, this new bond brings Mexico’s overall insurance coverage supported by the catastrophe bond market in 2024 to $595 million. The bond is issued under IBRD’s “capital at risk” notes program, which transfers risks related to natural disasters and other risks from developing countries to the capital markets.
The catastrophe bond attracted 22 institutional investors from around the world and provides financial protection to Mexico for four years. Payouts will be triggered if a named storm along the Pacific coast meets certain criteria set forth in the bond terms. Insurance payouts, funded by principal reductions of the bonds, will be passed by IBRD to the Government of Mexico through Munich Re and Agroasemex, S.A., a Mexican state-owned insurance company.
Jorge Familiar, Vice President and Treasurer of the World Bank stated: “The issuance of this $175 million cat bond...brings the nation’s total insurance protection through World Bank cat bonds to $595 million...Our cat bond program is a testament of our innovative approach to leveraging the capital markets for the benefit of our member countries.”
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...commitment to be prepared financially for natural disasters...The insurance arrangements supported by the World Bank cat bonds compliment Mexico’s other disaster risk financing instruments..."
Mark Roland Thomas, World Bank Country Director for Mexico, 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.”
The joint structuring agents for this bond were GC Securities, a division of MMC Securities LLC, Aon, and Munich Re. GC Securities and Aon also served as joint bookrunners for the transaction. AIR Worldwide acted as the risk modeler and calculation agent.
Paul Schultz, CEO, Aon Securities stated: “Following the successful placement of the Atlantic Hurricane and Earthquake tranches earlier this year...This placement and related insurance arrangement forms an important part of the Government of Mexico’s risk management strategy..."
Cory Anger, Managing Director, GC Securities, a division of MMC Securities LLC said: “We are honored to have completed...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, Munich Re commented: “Munich Re is pleased to see...the aggregate transaction volume amounts to nearly USD 600 million which is a great success..."