Mexico said planning cat bond market return in 2017

by Artemis on March 13, 2017

According to a report from Reuters, the Mexican government is planning to sponsor another catastrophe bond and is currently seeking bids from companies that can help to facilitate the issuance of a three-year cat bond covering hurricane and earthquake risks.

Map of MexicoReuters said that it received the information in an emailed response today from the Ministry of Finance of Mexico.

The Ministry confirmed that it is actively seeking bids for a new catastrophe bond that would provide coverage for hurricane and earthquake risks from 2017 to 2020, so across a three-year term.

Interestingly, the target issuance date for this Mexico catastrophe bond is July, which is of course in the hurricane season, one of the two perils the cat bond would be designed to transfer to capital market investors.

Mexico has of course benefited from catastrophe bond sourced insurance or reinsurance protection before.

The most famous issuance is of course the World Bank facilitated MultiCat Mexico Ltd. (Series 2012-1), which saw a 50% payout on one tranche of notes after the country was struck by hurricane Patricia last year.

Prior to that and also with the assistance of the World Bank, Mexico benefited from a MultiCat Mexico 2009 Ltd. catastrophe bond and in 2006 there was the CAT-Mex Ltd. notes issuance.

All of the cat bonds have provided reinsurance protection to FONDEN, Mexico’s state entity that runs a natural disaster insurance fund.

It’s encouraging to read that Mexico intends to return to the cat bond market, and market conditions will likely welcome the country back with very attractive pricing compared to its last issuance in 2012.

Rates for catastrophe bond backed insurance and reinsurance coverage have tumbled in recent years, making their protection considerably more cost-effective.

No further details are available currently and its not clear whether the World Bank is involved again in Mexico’s latest cat bond ambitions, nor whether this would be a MultiCat deal.

Interestingly, Mexico is also a member of the Pacific Alliance which, as we wrote earlier today, has been considering a joint catastrophe bond issue across its four member Latin American nations. It’s difficult to foresee Mexico looking to do both a Pacific Alliance cat bond and its own issuance, and it’s also hard to envision the remaining three Pacific Alliance countries sponsoring an issuance without Mexico, which likely has the largest economy of the group.

According to Reuters, responses to the Mexican government’s request for bids for the catastrophe bond project are due by the 28th March 2017.

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