Washington, DC, March 9, 2020 – The World Bank (International Bank for Reconstruction and Development, or IBRD) issued four catastrophe (CAT) bonds that will provide the Government of Mexico with financial protection of up to $485 million against losses from earthquakes and named storms for four years. The transaction was 1.5 times oversubscribed with a total of 38 investors participating. It is the largest CAT bond transaction for Mexico since the first issue in 2006, and it has the longest tenor of any sovereign CAT bond issued.
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.
The bonds were issued in different structures to provide coverage against earthquakes of different magnitudes, and against both Atlantic and Pacific named storms. If a natural disaster occurs that is eligible for coverage, some, or all, of the bond proceeds will be made available to the Mexican Fund for Natural Disasters (FONDEN).
Payouts will be triggered when the earthquake or named storm meet the parametric criteria for location and severity set forth in the bond terms. The payouts will be passed on by IBRD to FONDEN through the intermediation of Swiss Reinsurance Company Ltd, and Agroasemex, S.A., a Mexican state-owned insurance company.
GC Securities, a division of MMC Securities LLC, Goldman Sachs & Co. LLC and Swiss Re Capital Markets are the joint structuring agents and joint bookrunners for the transaction. AIR Worldwide is the risk modeler and calculation agent.
The 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 are listed on the Luxembourg Stock Exchange.
In 2006, Mexico became the first country to utilize CAT bonds. Mexico accessed additional CAT bonds in 2009 and 2012 using the World Bank’s MultiCat Program, and in 2017 and 2018 using IBRD’s Capital at Risk Notes program.
“We are proud to be able to support the Government of Mexico and FONDEN to reduce their vulnerability to natural disasters,” said World Bank Vice President and Treasurer Jingdong Hua. “We also appreciate investors’ readiness to join us in this transaction.”
“Mexico has been at the forefront of using innovative instruments to reduce the financial risk associated with natural disasters,” said Pablo Saavedra, World Bank Country Director for Mexico.
“This new coverage reflects the strong commitment of the Government of Mexico to protect the welfare of its citizens against the consequences of natural disasters. It aligns with our social protection strategies, in particular for the benefit of the most vulnerable social groups, and it helps strengthen the resilience of the public finances to natural disasters,” said Carlos Noriega Curtis, Head of Insurance, Pensions, and Social Security in the Ministry of Finance of Mexico. “These new catastrophe bonds incorporate qualitative improvements over previous ones, with a coverage now extended to four years and a more focused coverage of potential damages.”
“The government of Mexico has showed leadership in its usage of catastrophe bond protection over the last 14 years to increase its resiliency. GC Securities is honored to support FONDEN and assist IBRD in the implementation of the largest catastrophe bond transaction benefitting the government of Mexico,” said Cory Anger, Managing Director at GC Securities.
“Through this innovative risk transfer, we are proud to have partnered with the World Bank and FONDEN to facilitate this sustainable development solution. Sustainable financing is becoming a core pillar to business goals and operations across industries and we are committed to helping our clients navigate the environmental risk landscape to create successful commercial solutions,” said Aurora Swithenbank, Head of Insurance - Americas Financing Group at Goldman Sachs & Co. LLC.
"Swiss Re Capital Markets is pleased to have worked with the World Bank and FONDEN in bringing this successful transaction to market. This transaction reinforces Swiss Re’s mission to make the world more resilient and reinforces Mexico’s leadership in managing exposures to natural disasters," said Andy Palmer, Head ILS Structuring EMEA & APAC at Swiss Re Capital Markets.
World Bank Catastrophe Bonds Investor Distribution
Geographic Distribution |
| Investor Type | ||
Europe | 52% |
| ILS Specialist Fund | 61% |
North America | 42% |
| Asset Management | 16% |
Bermuda | 5% |
| Pension Fund | 15% |
Asia | 1% |
| Insurer / Reinsurer | 8% |
Disclaimers:
This press release is not an offer for sale of securities of the International Bank for Reconstruction and Development ("IBRD"), also known in the capital markets as "World Bank". Any offering of World Bank bonds described herein will take place solely on the basis of the relevant offering documentation including, but not limited to, the Prospectus, the Prospectus Supplement, the Final Terms and any related legal documentation. Investing in the bonds described herein is speculative and involves a high degree of risk including the risk of a total loss of principal amount of the applicable Class. The bonds will be offered and sold, and may be reoffered and sold, only to investors who (i) are “qualified institutional buyers” within the meaning of Rule 144A under the United States Securities Act of 1933, as amended, and (ii) are residents of and purchasing in, and will hold the bonds in, a permitted U.S. jurisdiction or a permitted non-U.S. jurisdiction (and meet the other requirements set forth under “Notice to Investors” in the Prospectus Supplement). The bonds will not be transferable except in accordance with the restrictions described under “Notice to Investors” in the Prospectus Supplement.
Net proceeds of the bonds described herein are not committed or earmarked for lending to, or financing of, any particular projects or programs, and returns on the bonds described herein are not linked to the performance of any particular project or program.
