Washington D.C., April 17, 2024 – 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.
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