World Bank Issues $175M Catastrophe Bond for Mexico's Pacific Hurricanes

The World Bank (International Bank for Reconstruction and Development, or IBRD) has issued a new catastrophe (cat) bond, providing $175 million in additional insurance protection for the Government of Mexico against named storm events occurring along the Pacific Coast. This bond significantly expands Mexico's coverage for Pacific hurricane risks, up from the recently expired $125 million cat bond. Combined with three other cat bonds issued by the World Bank for Mexico last month, this brings Mexico's total insurance coverage through cat bonds in 2024 to $595 million.

Issued under IBRD's "capital at risk" notes program, this cat bond transfers risks related to natural disasters from developing countries to capital markets. It attracted 22 institutional investors globally and offers financial protection to Mexico for 4 years, with payouts triggered if a named storm meets specific parametric criteria for location and severity. Insurance payouts, funded by bond principal reductions, will be facilitated by Munich Re and Agroasemex, a Mexican state-owned insurance company, and passed through IBRD to the Mexican government.

"The issuance of this $175 million cat bond, the fourth tranche provided to Mexico for disaster risk coverage, brings the nation's total insurance protection through World Bank cat bonds to $595 million. This significant uptake in size strengthens Mexico's financial protection against natural disasters. Our cat bond program is a testament of our innovative approach to leveraging the capital markets for the benefit of our member countries," said Jorge Familiar, vice president and treasurer of the World Bank.

The insurance arrangements supported by the World Bank cat bonds complement Mexico's other disaster risk financing instruments and are a fundamental part of the federal strategy for Financial Protection of Disaster Risks presented by the Minister of Finance for Mexico, Rogelio Ramírez de la O, as evidenced by the $60 million hurricane Otis payout received by Mexico through the previous cat bond,” said Héctor Santana Suárez, head of insurance, pensions, and social security in the Ministry of Finance of México.

GC Securities, a division of MMC Securities LLC, Aon, and Munich Re acted as joint structuring agents, while GC Securities and Aon were joint bookrunners. AIR Worldwide served as the risk modeler and calculation agent.

"Mexico is setting the standard for disaster risk management by using innovative financial tools like World Bank cat bonds to safeguard public funds from the effects of natural disasters," said Mark Roland Thomas, World Bank country director for Mexico.