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Hurricane Roslyn not a threat to Mexico’s catastrophe bond: Twelve Capital


Hurricane Roslyn made landfall on Mexico’s Pacific coastline as a category 3 hurricane with maximum sustained winds of around 120mph on October 23rd, but the minimum central pressure of the storm was not sufficiently low to trigger Mexico’s catastrophe bond arrangement.

mexico-flagHurricane Roslyn caused widespread damage across an area from Tecuala, in Nayarit state to Sayulita further south on the Pacific coast.

At least 4 fatalities were reported, while reports cited damaged properties, flooded roads and landslides, with impacts reported across a wide area.

The Pacific coast of Mexico, where hurricane Roslyn made its landfall on October 23rd, is covered under a Mexican government sponsored and World Bank issued catastrophe bond.

Mexico sponsored its $485 million IBRD / FONDEN 2020 transaction in March 2020, with a Class D tranche of notes providing it parametric disaster insurance protection against Pacific hurricane events.

This Class D tranche of notes is $125 million in size and, at issue, the notes came with a modelled expected loss of 4.06%.

The parametric trigger for the cat bond’s Pacific hurricane coverage is based on landfall location and minimum central pressure of any hurricane that approaches Mexico.

With a cat-in-a-box type arrangement, there is a line drawn along the coast of Mexico, with different grades of exposure, corresponding to a deeper, or lower, minimum central pressure being required to trigger the cat bond, at the time a hurricane crosses the parametric box (or line) structure.

In this case, insurance, reinsurance, catastrophe bond and insurance-linked securities (ILS) investment manager Twelve Capital has said that hurricane Roslyn was not sufficiently severe to threaten Mexico’s catastrophe bond.

In an update the investment manager said, “While the lowest pressure of this storm was ca. 950mb, it made landfall on the western side of Mexico where the trigger point starts at 935mb so Twelve Capital does not expect a loss from this event.”

Roslyn was the second hurricane of 2022 that threatened Mexico’s catastrophe bond, having intensified rapidly to reach Category 4, although weakened slightly prior to landfall.

Back in May, hurricane Agatha neared Category 3 major status as it approached Mexico’s Pacific coast, however its central pressure did not fall to levels low enough to trigger the catastrophe bond either.

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