World Bank Issues $420 Million in Catastrophe Bonds for Renewed Disaster Risk Protection for Mexico

Washington  – The World Bank (International Bank for Reconstruction and Development, or IBRD, AAA/Aaa), issued three catastrophe (cat) bonds that finance $420 million of insurance coverage for the Government of Mexico against named storm events along the Atlantic coast of Mexico and earthquake events. The cat bonds replace and increase by $60 million the previous cat bonds for these perils.

Mexico is highly exposed to many natural hazards. Over 40 percent of the country’s territory and nearly a third of the population is exposed to hurricanes, storms, floods, earthquakes, and volcanic eruptions. In economic terms, this translates to 30 percent of the country’s GDP considered to be at-risk from three or more hazards and more than 70 percent at risk from two or more hazards. In 2006, Mexico was the first Government to use the cat bond market for its risk financing needs, and since then has sponsored 20 cat bonds.

The cat bonds were issued under IBRD’s “capital at risk” notes program, which can be used to transfer risks related to natural disasters and other risks from developing countries to the capital markets. The bonds attracted 27 institutional investors from around the world, providing financing for catastrophe insurance to Mexico for four years, with payouts triggered if an earthquake or named storm event meets the parametric criteria for location and severity set forth in the bond terms. Payouts, funded by principal reductions of the bonds, will be passed by IBRD to the Government of Mexico through the intermediation of Munich Re, and Agroasemex, S.A., a Mexican state-owned insurance company.

“For almost two decades, Mexico has been partnering with the World Bank to access the risk-bearing capacity of the capital markets for its disaster risk management. The continued success of these transactions is a good example for other countries we are working with, as they consider the capital markets as a resource for financial protection against unpredictable natural events,” said Jorge Familiar, Vice President and Treasurer of the World Bank.

“The issuance of the 2024-2028 Cat Bonds is a fundamental part of the federal strategy for Financial Management of Disaster Risks and reaffirms the commitment of the Government of Mexico to increase protection to the population affected by a disaster, to safeguard macroeconomic stability and have additional resources to deal with potential external shocks caused by natural disasters”, said Héctor Santana Suárez, Head of Insurance, Pensions and Social Security in the Ministry of Finance of México. “The new coverage includes a higher insured amount, optimizes risk modeling and incorporates improvements in the exposure and parameters for the activation of the Bonds”.

“Mexico has been a leader in having a comprehensive disaster risk financing strategy and using innovative instruments, such as cat bonds to mitigate disasters’ impact on public finances,” said Mark Roland Thomas, World Bank Country Director for Mexico.

GC Securities, a division of MMC Securities LLC, Aon, and Munich Re were the joint structuring agents. GC Securities and Aon were joint bookrunners for the transaction. AIR Worldwide is the risk modeler and calculation agent.

“Aon Securities is pleased to partner with the World Bank to help the Government of Mexico bring another successful transaction to the capital markets. The Government of Mexico is very focused on activities and projects, including risk management, that generate positive impacts on society and the environment. We’re very proud to be a part of this mission and to also contribute to the Government of Mexico’s continued capital markets leadership,” said Paul Schultz, CEO, Aon Securities.

“We are delighted to have structured and placed Mexico’s catastrophe bond renewal, which provides Mexico with enhanced protection to April 2028 for Atlantic hurricanes and earthquakes affecting Mexico, demonstrating our commitment to empowering sustainable futures for Mexico. We celebrate Mexico’s almost 20-year commitment to protecting its country from the significant financial effects of Atlantic hurricane and earthquakes through the use of catastrophe bonds and partnership with the World Bank and its Capital-at-Risk Notes program,” Cory Anger, Managing Director, GC Securities, a division of MMC Securities LLC.

“Munich Re congratulates and is pleased that we had the opportunity to support the Mexican Secretariat of Finance and Public Credit as well as the World Bank by structuring and acting as fronting reinsurer in order to facilitate this successful capital market risk transfer,” said Andreas Müller, Head of Global Retro and ILS, Munich Re.