Mexico expected to renew Pacific coast hurricane cat bond after Otis resolution

We reported earlier this week that the Government of Mexico is back in the catastrophe bond market with a new World Bank facilitated IBRD CAR Mexico 2024 parametric catastrophe bond. That deal is missing one of its usual components, a Pacific hurricane tranche, but sources tell us to expect one, once any recovery from hurricane Otis is finalised.

The new $360 million IBRD CAR Mexico 2024 parametric catastrophe bond features three tranches of notes, two to cover earthquake risk and one for Atlantic hurricanes.

Typically, Mexico has sourced disaster risk insurance for both Atlantic and Pacific side hurricanes, but with a cat bond recovery still in the final stages of its determination, the Pacific tranche has been delayed and is expected to get issued separately at some stage in the future, we are told.

As we had been reporting, Mexico’s previous IBRD / FONDEN 2020 catastrophe bond is facing a loss of principal after Pacific hurricane Otis devastated areas around Acapulco last year.

Just last week, after the final NHC tropical cyclone report was published, we also reported that the bond now appears set for a roughly 50% loss of principal to the Class D notes after hurricane Otis, is scheduled to mature later this month.

Because the future of this tranche of notes was uncertain while this new IBRD CAR Mexico 2024 cat bond was being planned and structured, we’re told the Government of Mexico opted to delay the issuance of a Pacific coast hurricane tranche of notes, to allow for the Otis issue to be resolved and any payout come officially due.

Given the timing though, with hurricane season approaching and the 2020 cat bond set to mature, Mexico was keen to get as much of the renewal cat bond into the market as possible, hence the three tranche deal that is now being offered to cat bond investors.

It’s encouraging to learn that Mexico plans to bring a Pacific hurricane cat bond to market in future, to complete its usual catastrophe bond backed disaster insurance coverage.

It’s another sign of Mexico’s commitment to the marketplace and its understanding of the value and important contribution a parametric catastrophe bond can provide as part of its overall disaster risk financing arrangements.

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.