Mexico taps cat bond market, takes $420m for 4Y across 3 key perils

Mexico, an early leader in sovereign cat bond issuance, tapped capital markets again, taking $420 million in coverage against earthquake and Atlantic coast named storms in a set of deals in tandem with the World Bank and IBRD.

The three parametric, per-occurrence 4Y bonds replace maturing paper and add $60 million to total outstanding, the World Bank said in its statement from the transaction. 

Some 27 financial investors stepped up for the deal, chiefly split evenly between the US and Europe, with add-ons from Bermuda and Asia. ILS funds led at 65% of the deal, followed by hedge funds at 21% and a contribution from pension funds and re/insurers. 

Now in play: a $225 million cat bond against earthquake risks with a 4% risk margin plus collateral interest, a $70 million bond on earthquake risks with an 11% risk margin plus collateral earnings and a $125 million bond against named Atlantic coast storms priced with a risk margin of 13.5% plus collateral interest.  

Mexico is the world's first sovereign cat bond issuer and is considered “highly exposed” to nat cat perils, the World Bank noted. 

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. 

GC Securities, a Guy carpenter unit 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.

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