Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

MultiCat Mexico 2012 cat bond event notice submitted after recent quake


The April 18th earthquake in Mexico’s Guerrero state, which Artemis wrote about at the time as the quake was very close to hitting the parametric trigger of the MultiCat Mexico Ltd. (Series 2012-1) catastrophe bond did result in an event notice from the ceding reinsurer.

At the time that we wrote our article on the morning of the 19th, we felt it unlikely that the parametric trigger could be breached as the location of the magnitude M7.2 earthquake put it within trigger zones which would need the quake to have been an M7.4 or greater at least.

So while this earthquake had put the $140m Class A cat bond notes issued by MultiCat Mexico in its 2012 issuance at risk, it did not seem likely that the cat bond could be triggered by the event.

The ceding reinsurer Swiss Re, who ultimately provides the protection to The Fund for Natural Disasters of Mexico (FONDEN) via a catastrophe reinsurance agreement with Mexican insurer AGROASEMEX, felt it worth submitting an event notice on April 30th regarding the earthquake.

As a result of the submission of the event notice, risk modeller and calculation agent AIR Worldwide is required to assess whether the earthquake met the magnitude, location and depth parameters of the trigger to result in any loss of principal to the Class A notes.

AIR is now due to produce an event report, according to an update on the transaction from rating agency Standard & Poor’s. Under normal circumstances, when an event notice is submitted to a calculation agent asking them to produce an event report, S&P would place the tranche of notes on CreditWatch with negative implications.

However, in the case of this earthquake, S&P agrees with Artemis’ initial assessment and says in its updated; “However, in this case, the event parameters available on the U.S. Geological Survey Web site indicate to us that the event is unlikely to qualify as a triggering event.”

As a result of this, S&P says that it will not place the notes on CreditWatch at this time as it does not consider it appropriate and has affirmed the ‘B(sf)’ rating on the $140m Class A notes.

The earthquake had initially been reported as an M7.5 by the USGS, before being downgraded to an M7.2, so that might go some way to explaining the event notice submission by Swiss Re. Perhaps the reinsurer wanted to be 100% certain about the event and whether it had triggered the bond, with the ultimate beneficiaries perhaps asking for clarity.

Finally, as an interesting aside, there was another earthquake which struck the same area of Mexico yesterday and also fell within the MultiCat Mexico 2012 parametric trigger zones. Yesterday’s quake was weaker at M6.4 though, but it is worth noting that two large quakes in the space of a matter of weeks within the trigger zones of this catastrophe bond is unusual.

Unusual enough for Artemis to take to Twitter to let our audience there know:

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