World Bank issues cat bond for disaster protection in Mexico | Insurance business America
New issue to replace and increase the previous $60 million for named perils
reinsurance
By Kenneth Araullo
The World Bank has issued three catastrophe bonds that will provide the Mexican government with $420 million in insurance coverage for potential disasters, including named Atlantic coast storm events and earthquakes.
These new cat bonds not only replace the coverage of previous bonds, but also increase it by $60 million.
The World Bank has focused on Mexico’s vulnerability to natural disasters, with over 40% of its territory and almost a third of its population exposed to hurricanes, storms, floods, earthquakes and volcanic eruptions.
Economically, this means that about 30% of Mexico’s GDP is at risk from three or more types of hazards and over 70% from two or more.
Mexico pioneered the use of the cat bond market for venture financing in 2006, becoming the first government to do so. Since then, the company has sponsored 20 cat bonds to mitigate the financial impact of natural disasters.
These bonds were issued under the International Bank for Reconstruction and Development (IBRD) Capital at Risk Notes program, which aims to transfer risks associated with natural disasters from developing countries to capital markets.
The latest issuance attracted interest from 27 institutional investors worldwide and secured disaster insurance financing for Mexico for the next four years. Bond payouts, which are contingent on meeting certain parametric criteria regarding the location and severity of an event, are processed by the IBRD and forwarded to the Mexican government through intermediaries Munich Re and Agroasemex, SA, a state-owned insurance company .
Jorge Familiar, Vice President and Treasurer of the World Bank, highlighted the partnership and its role in protecting the country from losses.
“For nearly two decades, Mexico has worked with the World Bank to access the risk-bearing capacity of capital markets for its disaster risk management,” he said. “The continued success of these transactions sets a good example for other countries we work with as they view capital markets as a resource for financial protection against unforeseeable natural events.”
The transaction was led by GC Securities, Aon and Munich Re as joint structuring agents, with GC Securities and Aon acting as joint bookrunners. AIR Worldwide provided risk modeling and calculation services.
“Munich Re congratulates and is pleased that we had the opportunity to support the Mexican Secretariat of Finance and Public Credit and the World Bank through the structuring and role of a fronting reinsurer to enable this successful capital market risk transfer,” Andreas Müller said Head of Global Retro and ILS at Munich Re.
What do you think about this story? Please share your comments below.
Stay up to date with the latest news and events
Join our mailing list, it’s free!
Source link
2024-04-19 13:30:00
www.insurancebusinessmag.com
