Mexico’s catastrophe bond presumed safe from hurricane Milton

After hurricane Milton skirted the northern Yucatan peninsula of Mexico without making a landfall it is now presumed that the $125 million Class C notes of the IBRD CAR Mexico 2024 catastrophe bond are safe and will not suffer a loss.

As hurricane Milton rapidly intensified last night its sustained winds reached 180 mph and its minimum central pressure dipped to 897 mb.

At that very low central pressure, which is the second lowest ever recorded in the Atlantic basin after 2005’s Wilma, had hurricane Milton made landfall on the northern Yucatan it would certainly have triggered these catastrophe bond notes.

In fact, we believe that a minimum central pressure of close to that low level would have triggered a 100% loss of principal to the IBRD Mexico Class C notes that are exposed to Atlantic hurricanes on a parametric trigger basis.

As we explained yesterday, the $125 million of Class C Mexico IBRD Atlantic hurricane catastrophe bond notes feature a parametric trigger design that requires a storm at or below a certain central pressure to cross into the parametric arrangement for a payout to the Mexican Government to come due.

In this case, hurricane Milton tracked roughly east and skirted the Yucatan by only tens of miles, which appears to have avoided a triggering situation for the IBRC Mexico cat bond notes.

Catastrophe bond investment manager Icosa Investments AG concurred, with its latest analysis of the passage of hurricane Milton passed the Yucatan peninsula of Mexico seen below and showing the storm did not get close enough to breach the trigger gates.

It was a relatively close run thing, as just a wobble further south might have taken Milton’s eye up to and over the parametric trigger construction.

Of course, having only brushed the Yucatan this land interaction has also not caused any degradation to hurricane Milton’s structure, which could have been a factor that helped reduce the potential impacts in Florida had a closer passage to Mexico occurred.

You can track this and every Atlantic hurricane season development using the tracking map and information on our dedicated page.

Also read:

– Stone Ridge leads managers cutting mutual cat bond or ILS fund NAVs on hurricane Milton.

– Hurricane Milton could be a huge test for the entire (re)insurance market: Evercore ISI.

– Hurricane Milton losses could amount to tens of billions, but uncertainty high: BMS’ Siffert.

– As hurricane Milton intensifies, Mexico’s catastrophe bond comes into focus.

– Material hurricane Milton losses could change 2025 property reinsurance price trajectory: KBW.

– Cat bond & ILS managers explore options to free cash, as hurricane Milton approaches.

– Hurricane Milton: First Tampa Bay storm surge indications 8 to 12 feet.

– Hurricane Milton is biggest potential ILS market threat since Ian in 2022: Steiger, Icosa.

– Hurricane Milton forecast for costly Florida landfall. Cat bond & ILS market on watch.