Confirmation of Catastrophic Bond Payout in Mexico
The Secretaría de Hacienda y Crédito Público (Secretariat of Finance and Public Credit) confirmed this Friday that the catastrophic bond payout in Mexico (Catbond) has been activated.
This bond is issued by the Government of Mexico, through the World Bank since March 2020.
The catastrophic bond in Mexico is equivalent to insurance that covers risks associated with natural disasters, with an amount totaling 485 million dollars and a term of 4 years.
The bonds were issued in four different classes to provide coverage against losses caused by earthquakes of various magnitudes, as well as tropical cyclones originating from both the Atlantic and the Pacific.
“The catastrophic bonds in Mexico are part of the strategy to strengthen the resilience of public finances against extraordinary events,” Hacienda stated, although it did not specify the amount of coverage that could be received.
In the issuance of the Catbond, which has coverage of around 8.8 billion pesos at the current exchange rate, the International Bank for Reconstruction and Development (IBRD) also participated.
Hacienda warned that Mexico is highly exposed to various natural hazards.
Just over 40 percent of the national territory, and about 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 being considered vulnerable to three or more hazards and 71 percent vulnerable to two or more hazards.
Payments will be initiated when an earthquake or tropical cyclone meets the parametric criteria for location and severity established in the terms of the bonds.
-About the Catastrophic Bond Payout in Mexico-
The bond was issued under the International Bank for Reconstruction and Development’s (IBRD) “capital at risk” note program, which allows the transfer of risks related to natural disasters and other risks of developing countries to the capital markets.
Similarly, the issuance is “sustainable” in that the resources will be applied to programs that fully comply with international Environmental, Social, and Governance (ESG) criteria, meaning they address climate change, are socially responsible, and improve program governance.
In 2006, Mexico became the first country to issue a catastrophic bond.
Subsequently, it issued additional catastrophic bonds in 2009 and 2012 using the World Bank’s MultiCat program and in 2017 and 2018 using the IBRD’s capital at risk note program.
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