Mexico expects $150m cat bond claim, aims to replace protection

by Artemis on October 5, 2017

The government of Mexico is expecting to receive the $150 million payout from the triggered $150 million tranche of IBRD / FONDEN 2017 catastrophe bond notes, that were hit by the Chiapas region earthquake in September, and will look to replace the layer with a new cat bond issue, according to a report.

The $150 million Capital-At-Risk Series 113 tranche of Class A notes issued in the FONDEN 2017 cat bond are expected to be a total loss by the catastrophe bond market and according to a report from Reuters the Mexican government finance ministry agrees.

However, the cat bond has yet to payout and a Mexican finance ministry official explained to Reuters that the triggering of the notes would not be definitive until after October 10th, when the USGS provides updated information on the earthquake magnitude.

“In a preliminary way, we know that our catastrophe bond was activated,” said Oscar Vela, who heads up the insurance and pensions division of the Ministry of Finance of Mexico. “Once this diagnostic period of the geological parameters ends, we will have access to the $150 million.”

Vela also said that as the catastrophe issue received such strong demand from ILS market investors the government would likely look to issue a further transaction to replace the eroded layer of earthquake protection, that the triggered cat bond notes provide.

Once the final determination of the triggering of the Class A notes is made and if payout is due then the money will be transferred to FONDEN for use in disaster recover, Vela explained.

So payout for this parametric cat bond is going to take more than a month, which while not as fast as disaster relief would typically require is still faster than some previous parametric cat bond payouts and significantly faster than other trigger mechanisms would allow.

Mexico is likely to replace the notes and this would be well-received by the ILS investor base. The country is also in talks with the Pacific Alliance of Peru, Chile, Colombia and Mexico, whose governments are discussing a combined catastrophe bond issue in 2018.

You can read all about the IBRD / FONDEN 2017 catastrophe bond and every other cat bond transaction since the market began in the Artemis Deal Directory.

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