Mexico could lift new World Bank catastrophe bond to $420m

The Government of Mexico has increased the target size for its latest catastrophe bond, with now up to $420 million of parametric disaster insurance protection for earthquake and hurricane events being sought from the World Bank facilitated IBRD CAR Mexico 2024 transaction.

Mexico returned to the catastrophe bond market in March, with an initial $360 million target for this new IBRD CAR Mexico 2024 issuance.

Now, we’re told the target has been raised, with between $385 million and $420 million of protection now sought.

While smaller than the maturing and triggered $485 million IBRD / FONDEN 2020  catastrophe bond, remember that this new issuance does not contain a Pacific hurricane tranche of notes, but that we reported the Mexican government is expected to sponsor one once the recovery from the triggering by hurricane Otis is finalised.

For its new catastrophe bond, Mexico has again partnered with the World Bank and the IBRD, with the notes set to be issued by the International Bank for Reconstruction and Development (IBRD) under its global debt issuance facility and Capital-At-Risk notes program.

The new cat bond will protect Mexico with coverage against earthquakes and Atlantic hurricanes, on a parametric trigger and per-occurrence basis, while that coverage will run across a four year term, to early April 2028.

What was a $175 million Class A tranche of earthquake notes are now targeted at between $200 million and $225 million in size, we understand.

The Class A notes have an initial expected loss of 0.9% and were first offered to investors with price guidance in a range from 3.5% to 4.25%, but we’re told that guidance is now fixed at 4%.

What was a $60 million Class B tranche of riskier earthquake notes are now targeted at up to $70 million in size, we understand.

The Class B tranche comes with an initial expected loss of 5.84% and were initially offered to investors with price guidance in a range from 10.25% to 11.25%, but that has now been fixed at 11%, we are told.

What was a $125 million Class C tranche of Atlantic named storm notes are still the same size, it is said.

The Class C notes will have an initial base expected loss of 5.69% and were first offered to investors with price guidance in a range from 12.5% to 13.5%, but that has also been fixed at 13.5%, so the upper-end.

With all three tranches looking set to price within guidance, it seems this cat bond went out with perhaps more realistic pricing than the many deals that have priced down significantly of late.

So, it’s still encouraging to see the Mexican government with the appetite to upsize its latest catastrophe bond and at $420 million with still a Pacific hurricane tranche to come in future, Mexico could even end up with more protection than its maturing deal.

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