Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Hurricane Paul too weak to threaten MultiCat Mexico 2012 Class C notes


The recently completed MultiCat Mexico Ltd. (Series 2012-1) catastrophe bond, which you can read all about in our Deal Directory, became on-risk yesterday, the 15th of October, we believe according to available documentation. The risk period began yesterday and in a very unusual occurrence there is a hurricane heading directly for one of the cat bonds parametric trigger zones on the Mexican Pacific coastline.

Hurricane Paul is a Category 2 storm, carrying maximum sustained winds of 110mph, making it a storm worth watching for the reinsurance industry as it could cause some damage on the coastline wherever it eventually makes landfall.

Thankfully for investors in the MultiCat Mexico deal, hurricane Paul is expected to weaken before landfall and there is no chance of the hurricane meeting the parameters required to trigger the Class C tranche of notes. For a hurricane to trigger the deal on the Pacific coast of Mexico, it needs to make landfall within the parametric zone, which hurricane Paul looks almost certain to do, but it must also have a minimum central pressure of 932mb to 920mb to cause a 50% loss of principal to the Class C noteholders, or below 920mb to cause a 100% loss of principal.

Hurricane Paul currently has a minimum central pressure of 967mb and while this could decline a little as the storm approaches shallower waters and the Mexican coast, it is extremely unlikely that it could drop so far unless the storm intensified significantly (highly unlikely).

So it looks like MultiCat Mexico 2012 noteholders are safe from this hurricane threat. It’s very unusual for a cat bond to launch and become under threat almost immediately, but this is what the instruments are designed for so investors have to be prepared that a catastrophe can happen at any time.

You can see the current location of hurricane Paul below and the MultiCat Mexico Class C parametric zone below that:

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Hurricane Paul forecast path

Hurricane Paul forecast path

MultiCat Mexico Ltd. Series 2012-1 Class C notes hurricane zone and trigger parameters

MultiCat Mexico Ltd. Series 2012-1 Class C notes hurricane zone and trigger parameters

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