IBRD CAR Mexico 2024

The Government of Mexico has returned for a new World Bank and IBRD facilitated catastrophe bond, as the country looks to secure a new source of parametric disaster insurance protection from the capital markets.

Mexico is again partnered with the World Bank and the IBRD to issue this new catastrophe bond, which will be issued by the International Bank for Reconstruction and Development (IBRD) under its Capital-At-Risk notes program.

$360 million of notes are being offered, spread across three tranches with two covering earthquake risks and one Atlantic named storm risks, all on a parametric trigger basis.

Global reinsurance giant Munich Re is sitting in the middle to front the reinsurance market, so will enter into a retrocessional agreement with the IBRD issuer and then pass on the reinsurance to AGROASAMEX, which is the Mexican governments insurer, that in turn passed on the coverage directly to the Mexican governments Secretary of Treasury and Public Credit.

Like the previous and maturing Fonden 2020 cat bond deal, Mexico will benefit from parametric coverage against earthquakes and Atlantic hurricanes, providing an efficient and capital markets backed source of disaster insurance directly to the government, to help them in paying relief, reconstruction and recovery costs when major catastrophes occur.

However, no protection for Pacific named storms and hurricanes is being sought, likely due to the fact that after 2023’s hurricane Otis the Pacific named storm tranche of Mexico’s previous cat bond still faces a payout.

The parametric triggers are said to be similar to the previous deal as well, with a stepped payout trigger of 25%, 50%, 75% and 100% of principal for the earthquake risk cover, 25%, 50% and 100% for Atlantic named storm, and boxes indicating the size of payout dependent on the magnitude of an earthquake or the depth of central pressure of a hurricane.

So, again it is location and intensity of the catastrophe event that will determine the payout, which allows the Mexican government to calibrate the parametric triggers for the coverage so that they respond based on risk and exposure.

The Atlantic named storm cover parametric trigger features a linear payout factor from 25% upwards, depending on the parameters of location and minimum central pressure, we understand.

The $360 million of protection across the three tranches of notes is all based on a parametric trigger and provides per-occurrence coverage, while that coverage will run across a four year term, to early April 2028, sources explained.

A $175 million Class A tranche of notes are the first to provide earthquake coverage and have an initial attachment probability of 1.17%, an initial expected loss of 0.9% and are being offered to investors with price guidance in a range from 3.5% to 4.25%, we are told.

The second $60 million Class B tranche of notes also provide parametric earthquake protection, but are much riskier, having an initial attachment probability of 8.3%, an initial expected loss of 5.84% and are being offered to investors with price guidance in a range from 10.25% to 11.25%.

The final $125 million Class C tranche are the notes that will provide Atlantic named storm protection on a parametric basis, and have an initial attachment probability of 7.96%, an initial base expected loss of 5.69% and are being offered to investors with price guidance in a range from 12.5% to 13.5%, sources said.

Update 1:

We’re told the target has been raised for the Government of Mexico’s new catastrophe bond, with now between $385 million and $420 million of protection now sought.

The Class A tranche of earthquake notes are now targeted at between $200 million and $225 million in size, while their price guidance is now fixed at 4%.

The Class B tranche of riskier earthquake notes are now targeted at up to $70 million in size, while their pricing guidance has now been fixed at 11%, we are told.

The Class C tranche of Atlantic named storm notes are still the same size at $125 million, but their spread price guidance has also been fixed at 13.5%.

Update 2:

We understand that Mexico’s government has now secured the upsized target of $420 million in parametric disaster insurance from its latest World Bank catastrophe bond deal.

The Class A tranche of earthquake notes, CAR 132, were finalised at $225 million in size, priced at 4%.

The Class B tranche of riskier earthquake notes, CAR 133, were finalised at $70 million in size, priced at 11%.

The Class C tranche of Atlantic named storm notes, CAR 134, were finalised at $125 million in size, priced at 13.5%.

The World Bank revealed that the bonds attracted interest from 27 institutional investors from around the world.

The majority, or 65% of the investors were ILS funds, with asset managers or hedge funds accounting for 21%, insurers and reinsurers 7%, and pension funds also accounting for 7%.

In terms of geographic investor distribution, Europe and North America accounted for 44% each, Bermuda 10%, and then Asia / Australia 2%.

Update 3:

Together with a $175 million Pacific named storm tranche of notes, IBRD CAR Mexico 2024 (Pacific), Mexico’s overall catastrophe bond coverage has risen 23% to $595 million over the maturing deal, which will now run across the next four years.