The World Bank has issued $420 million in disaster bonds to provide new disaster risk protection for the Mexican government.
The cat bond will fund insurance coverage against certain storms and earthquakes along Mexico's Atlantic coast and will be issued by the International Bank for Reconstruction and Development (IBRD) under its Capital at Risk Bond Program. is.
The cat bond replaces the previous cat bond for these perils and is increased by $60 million, according to the announcement.
The bond attracted 27 institutional investors from around the world to provide four years of financing for Mexican catastrophe insurance.
Payments are made on a parametric trigger basis. That is, if an earthquake or named storm event meets the parametric criteria for location and severity set out in the warranty terms.
Through the intermediation of Munich Re, a global reinsurance company, the IBRD issuer hands over the reinsurance to AGROASAMEX, the Mexican government's insurance company, which in turn transfers the coverage to the Mexican government's Secretary of Finance and Public Credit. It will be handed over directly.
Jorge Familia, World Bank Vice President and Treasurer, commented: “For nearly 20 years, Mexico has partnered with the World Bank to harness the risk-bearing capacity of capital markets for disaster risk management.
“The continued success of these transactions will serve as a good example for other countries we work with, as they see capital markets as a resource to protect finances from unpredictable natural phenomena. Because it is.”
With more than 40% of its territory and nearly a third of its population exposed to hurricanes, storms, floods, earthquakes, and volcanic eruptions, Mexico is a country highly exposed to many natural disasters.
In economic terms, this means that 30% of a country's GDP is considered to be exposed to three or more hazards, and more than 70% is considered to be exposed to two or more hazards.
In 2006, the Mexican government first tapped into the cat bond market for its risk financing needs and has since sponsored 20 cat bonds.
Héctor Santana Suárez, Director of Insurance, Pensions and Social Security at Mexico's Ministry of Finance, said: “The issuance of the Cat Bond for the period 2024-2028 is a fundamental part of the federal strategy for the financial management of disaster risks and reaffirms its commitment.” It aims to strengthen protection, safeguard macroeconomic stability and ensure additional resources to cope with external shocks that may be caused by natural disasters.
“The new coverage includes higher sum insured, optimized risk modeling and incorporates improved exposures and parameters for bond triggering.”
“Mexico has a comprehensive disaster risk financing strategy and has been a leader in leveraging innovative instruments such as cat bonds to reduce the fiscal impact of disasters,” said Mark, World Bank Country Director for Mexico. Roland Thomas added.
GC Securities, a division of MMC Securities LLC, Aon and Munich Re acted as co-structuring agents.
GC Securities and Aon were joint bookrunners on the transaction with risk modeler and calculation agent AIR Worldwide.
