Mexico targets October renewal for MultiCat catastrophe bond

by Artemis on September 8, 2015

The Mexican government has confirmed that it will seek to renew its MultiCat Mexico catastrophe bond protection in October, with another three-year term of catastrophe insurance protection expected to be secured from a MultiCat Mexico 2015 issuance.

The protection from the current MultiCat cat bond, MultiCat Mexico Ltd. (Series 2012-1), expires when the three tranche bond matures on the 4th December 2015. According to government papers, Mexico will seek to renew the cat bond in October, giving it plenty of time to replace the maturing transaction.

The 2012 MultiCat provides Mexico with hurricane and earthquake insurance protection, across three tranches of notes covering different parametric trigger zones. The protection is afforded ultimately to The Fund for Natural Disasters of Mexico (FONDEN), via catastrophe insurance through Mexican insurer AGROASEMEX who in turn has a reinsurance agreement with Swiss Re who sponsored the 2012 deal.

The cat bond has come close to being triggered, particularly by hurricane Odile in September 2014. However no payout was ever made, as it was found 120 days later that Odile was not a triggering event.

Despite that, the Mexican government can clearly see the benefits of having the catastrophe bond in place and appreciates the additional protection that the capital markets and ILS investors have provided through the MultiCat deals insurance and reinsurance agreements.

The 2012 transaction was Mexico’s second, following on from the MultiCat Mexico 2009 Ltd. transaction. So any new cat bond sponsored in 2015 will be the third MultiCat transaction that Mexico will be the beneficiary of.

Mexico clearly sees the MultiCat cat bond series as an integral part of its disaster risk management and financing plan, enabling the country to secure pre-event financing with a parametric trigger to ensure a relatively speedy payout and disbursement of funds.

Mexico’s government aims to maintain its financial stability, through risk transfer, with adequate capital available should the worst occur. Hence the MultiCat renewal will be a core piece of the governments disaster risk management plans in 2015.

The government document said that the MultiCat catastrophe bond will be renewed in October, for another three-year term and again to provide protection against hurricanes and earthquakes.

The President of Mexico’s report states (translated):

As part of the comprehensive strategy of risk management established by the Government of the Republic to maintain the stability of public finances and have adequate mechanisms for dealing with natural disasters, it will be sought during 2015 to continue the instruments of financial transfer disaster risks.

In October 2015, the renewal of the MultiCat catastrophe bond against catastrophic event earthquakes and hurricanes for another 3 years.

For an October issuance, the next MultiCat Mexico 2015 cat bond will likely be launched later in September. We’ll update you when any details become available.

The Mexican government is also considering joining with other Latin American countries to launch another MultiCat type cat bond, but this time to protect the region against major disaster events.

This Latin America wide catastrophe bond had been discussed earlier in 2015, as a way for the Latin American states to secure multilateral coverage for catastrophe exposures. The World Bank would be likely to get involved in any such issuance as well.

At the moment the Latin American cat bond is under consideration, according to the President of Mexico.

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