IBRD CAR Mexico 2024 (Pacific)

As anticipated, the Government of Mexico has returned to secure Pacific named storm protection from a new World Bank and IBRD facilitated catastrophe bond, as the country looks to finalise its latest capital markets source of parametric disaster insurance protection.

In recent week’s, Mexico has secured a $420 million source of protection against earthquakes and Atlantic hurricanes through its new World Bank facilitated IBRD CAR Mexico 2024 catastrophe bond transaction.

As Artemis has been reporting, due to the ongoing process of making a recovery from its previous cat bond after hurricane Otis, the Mexican government has elected to delay issuance of a Pacific hurricane tranche this time around.

Now, that additional tranche of protection is being secured, through an additional offering of $125 million of notes to provide disaster insurance protection against Pacific named storms on a parametric trigger basis.

For simplicity, we’ve added this new tranche to our extensive catastrophe bond Deal Directory under the latest entry, IBRD CAR Mexico 2024 (Pacific).

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

$125 million of catastrophe-linked Capital-at-risk notes are being offered, in a single tranche designed to provide Pacific named storm protection to the Government of Mexico.

Munich Re sits in the middle, like the other tranches, acting as a front to the reinsurance market, so will enter into a retrocessional agreement with the IBRD issuer and then pass on the reinsurance protection 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.

Mexico will benefit from parametric coverage against Pacific coast named storms and 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.

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

The $125 million of Pacific named storm notes will offer Mexico protection 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 said.

The Class D notes will have an initial attachment probability of 6.26%, an initial expected loss of 4.09% and are being offered to investors with price guidance in a range from 11% to 12%, we are told.

Update 1:

We’re told that the target size for this new Pacific named storm catastrophe bond for Mexico has increased, with between $150 million and as much as $175 million of protection now being sought.

At the same time, we understand that the price guidance has been raised to the top of the original range, being fixed at a 12% risk margin.

Update 2:

We’re now told that this Pacific named storm tranche of IBRD CAR 135 notes will settle at the 40% upsized $175 million, while the risk margin will be priced at the upper-end of guidance, at 12%.

Together with the $420m of protection for earthquakes and Atlantic hurricanes secured through the earlier issuance of the IBRD CAR Mexico 2024 catastrophe bond transaction, Mexico will now benefit from $595 million of cover through the next four years.

Update 3:

In total, 22 institutional investors supported the issuance of the Pacific hurricane tranche of cat bond notes for Mexico, which provides $175 million of multi-year parametric disaster insurance protection to the country.

Of the investors backing the Pacific hurricane tranche of notes, 47% were from the United States, 28% from Europe, 23% from Bermuda and 2% from Asia and Australia.

The investor base for the notes consisted of 73% specialist ILS funds, 13% insurance and reinsurance firms, 10% asset managers or hedge funds, and 4% direct pension fund investors.