Hurricane Genevieve pressure implies no Mexico cat bond threat

Hurricane Genevieve remains a strong category 3 hurricane as it barrels towards the Baja Peninsula of Mexico in the Pacific, with sustained winds of 115 mph and higher gusts, but with the central pressure of the storm now rising it suggests there is no threat to the World Bank issued parametric Mexico catastrophe bonds.

Just 24 hours ago, hurricane Genevieve had intensified into a major category 4 storm with sustained winds of 130 mph and above and a minimum central pressure of 950 mb.

Having weakened now, the all-important minimum central pressure is on the rise and at the last update hurricane Genevieve’s central pressure was estimated as higher at 960 mb.

Little change in strength is expected through the rest of today, with steady weakening now expected from Thursday, according to NOAA.

Hurricane Genevieve’s forecast path is expected to take the storm very close to the Baja Peninsula of Mexico, with the coastal towns of Cabo San Lucas, San Carlos, Puerto Cortes and Puerto Chale, all set to experience at the least rough weather as the hurricane passes.

There is an outside chance that hurricane Genevieve makes a turn and comes closer to the coast of the Baja California Peninsula.

But even if that did happen, it’s expected that the catastrophe bonds most exposed to Pacific hurricane landfalls in Mexico will be safe, as Genevieve’s minimum central pressure is too high to cause any notes to be triggered.

Hurricane Genevieve’s minimum central pressure at landfall would have to dip significantly to 935 mb or below, in order for the Class D notes of the Mexican government’s World Bank supported IBRD / FONDEN 2020 catastrophe bond.

The Class D tranche of notes from the 2020 catastrophe bond transaction provides Pacific named storm and hurricane disaster insurance coverage to the Mexican government on a parametric trigger and per-occurrence basis across a four-year term. The notes have a modelled expected loss of 4.06%.

The parametric trigger for the Class D Pacific named storm exposed notes features, a line along the Pacific coast over which a hurricane eye needs to pass with a certain minimum central pressure, or lower, for a payout of 25%, 50% or 100% and a loss of investor principal to come due.

As a result, the cat bond trigger is flexible based on location and severity of a hurricane, but in the case of hurricane Genevieve, the minimum central pressure is far too high for the cat bond to be triggered.

In fact, the highest central pressure that could trigger any kind of payout from the Class D Fonden 2020 cat bond notes is 935 mb.

Based on the latest forecast data, it seems there is little chance of hurricane Genevieve managing to re-intensify and drop its minimum central pressure some 25 mb to reach that level, or below.

As a result, the FONDEN 2020 catastrophe bond sponsored by the Mexican Government appears safe, even if hurricane Genevieve makes a turn and impacts land.

Hurricane Genevieve remains a dangerous hurricane though and should it impact land, or come close enough to cause hurricane force winds and push a storm surge onshore, the impact to lives and livelihoods could still be significant, even though it is not of the severity necessary to trigger the Mexican Government’s parametric cat bond coverage.