Mexico cat bond cover hits $595m, as upsized $175m Pacific named storm tranche secured

The Government of Mexico has now secured $175 million of parametric Pacific named storm disaster insurance protection from the capital markets through the IBRD CAR Mexico 2024 (Pacific) catastrophe bond issuance, which is 40% more than the initial target for this tranche of notes and will take Mexico’s overall cat bond cover to $595 million, Artemis can reveal.

As we’d reported, Mexico has already secured $420 million in parametric disaster insurance protection against earthquakes and Atlantic hurricanes from the capital market, through its recently placed World Bank facilitated IBRD CAR Mexico 2024 catastrophe bond transaction.

Due to the ongoing process of making a recovery from its previous cat bond after hurricane Otis triggered the notes, the Mexican government had elected to delay issuance of a Pacific hurricane tranche this time around but was always expected to renew it when the time was right.

That additional tranche of notes to provide Mexico with disaster insurance protection against Pacific named storms on a parametric trigger basis emerged earlier in April, with an initial target to secure $125 million in cover, which would fully replace the old cat bond coverage.

With a payout due for the same peril from its previous catastrophe bond, it was always going to be interesting to see how this new Mexico Pacific hurricane exposed tranche fared in the market.

As we reported yesterday, the target size for the Pacific named storm cat bond for Mexico was increased, with between $150 million and as much as $175 million of protection then being sought, while at the same time the pricing was lifted to the top-end of guidance.

Now, we can reveal that the upper target of $175 million of protection has been secured from this new Pacific named storm cat bond issuance for Mexico, which along with the previously issued quake and Atlantic wind tranches takes Mexico’s overall catastrophe bond coverage to $595 million.

This IBRD CAR Mexico 2024 (Pacific) will now provide Mexico with $175 million of protection against Pacific named storms and hurricanes, on a per-occurrence basis using a parametric trigger, with the coverage running across a four year term, to early April 2028, aligned with the other tranches of cat bond notes issued previously.

The Pacific named storm parametric trigger features a linear payout factor from 25% upwards, depending on the parameters of location and minimum central pressure.

Global reinsurance firm Munich Re is set to front the capital markets, so will enter into a retrocessional agreement with the IBRD issuer and then pass on that reinsurance protection to AGROASAMEX, which is the Mexican government insurer, that in turn passes on the coverage directly to the Mexican governments Secretary of Treasury and Public Credit.

The now confirmed to be $175 million of Class D notes come with an initial expected loss of 4.09%.

The notes were first offered to investors with price guidance in a range from 11% to 12%, but the risk margin has now been fixed at the upper-end of 12%.

Given the ongoing payout it’s perhaps no surprise this tranche of notes saw their pricing rise, which makes it all the more encouraging that Mexico elected to upsize the Pacific named storm cat bond issuance anyway.

The previous Pacific named storm tranche of notes, that were recently triggered by hurricane Otis and are presumed to be paying out ~50%, were only $125 million in size, so now it is confirmed that the Mexican government will move through the next few years with much more disaster protection in place from the catastrophe bond market.

That whole IBRD/ Fonden 2020 issuance was only $485 million in size, where as Mexico now has $420 million of protection against Atlantic named storms and earthquakes, and now $175 million of cover from this Pacific named storm tranche, so the overall Mexico cat bond cover has risen to $595 million for the next four years, an increase of 23% over the maturing and triggered deal.

You can read all about this IBRD CAR Mexico 2024 (Pacific) catastrophe bond and more than 1,000 other cat bond transactions in the extensive Artemis Deal Directory.