World Bank Issues $175 Million in Catastrophe Bond for Mexico’s Pacific Hurricane Risk

Washington D.C., May 15, 2024 - The World Bank (International Bank for Reconstruction and Development, or IBRD), issued a new catastrophe (cat) bond that finances $175 million of additional insurance protection for the Government of Mexico against named storm events occurring on the Pacific side of Mexico. This bond significantly expands Mexico’s coverage for Pacific hurricane risk from the recently expired $125 million cat bond. This cat bond, together with three cat bonds issued by the World Bank for Mexico last month, brings Mexico’s overall insurance coverage supported by the cat bond market in 2024 to $595 million.  

The cat bond is 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 cat bond attracted 22 institutional investors from around the world, and provides financial protection to Mexico for four years, with payouts triggered if a named storm along the Pacific coast meets the parametric criteria for location and severity set forth in the bond terms.  Insurance 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.

“The issuance of this $175 million cat bond, the fourth tranche provided to Mexico for disaster risk coverage, brings the nation’s total insurance protection through World Bank cat bonds to $595 million. This significant uptake in size strengthens Mexico’s financial protection against natural disasters. Our cat bond program is a testament of our innovative approach to leveraging the capital markets for the benefit of our member countries,” said Jorge Familiar, Vice President and Treasurer of the World Bank.

“The renewal and expansion of hurricane cover for the Pacific coast demonstrates the Government of Mexico’s commitment to be prepared financially for natural disasters. Together with the recent earthquake and Atlantic cat bonds issued by the World Bank, this cat bond increases Mexico’s resilience against future events by $110 million compared to the cat bond cover which was previously in place. The insurance arrangements supported by the World Bank cat bonds compliment Mexico’s other disaster risk financing instruments, and are a fundamental part of the federal strategy for Financial Protection of Disaster Risks presented by the Minister of Finance for Mexico, Rogelio Ramírez de la O, as evidenced by the $60 million hurricane Otis payout received by Mexico through the previous cat bond,” said Héctor Santana Suárez, Head of Insurance, Pensions and Social Security in the Ministry of Finance of México.

“Mexico is setting the standard for disaster risk management by using innovative financial tools like World Bank cat bonds to safeguard public funds from the effects of natural disasters,” said Mark Roland Thomas, World Bank Country Director for Mexico.

GC Securities, a division 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.

“Following the successful placement of the Atlantic Hurricane and Earthquake tranches earlier this year, Aon Securities is proud to again partner with the World Bank to help the Government of Mexico secure critical Pacific hurricane protection. This placement and related insurance arrangement forms an important part of the Government of Mexico’s risk management strategy for natural disasters, which aims to protect the population, reduce fiscal exposure, and contribute to the government response. Further, the proceeds from the notes will be used by the World Bank to finance eligible sustainable development projects, which are designed to achieve positive social and environmental impacts and outcomes. The social objectives of the Government of Mexico and the World Bank are of utmost importance to Aon Securities, and we’re proud to be a part of the impact they create,” said Paul Schultz, CEO, Aon Securities.

“We are honored to have completed the last part of the World Bank’s Mexico-related catastrophe bond renewal supporting the Government of Mexico through the issuance of the World Bank Class D Notes. Given Mexico and the World Bank’s commitments to consistently protect Mexico from natural peril catastrophes, this transaction demonstrates the sustainable partnership of insurance-linked securities (ILS) investors to support recent loss-affected regions with expanded capacity,” said Cory Anger, Managing Director, GC Securities, a division of MMC Securities LLC.

“Munich Re is pleased to see the Government of Mexico and the World Bank successfully complete and upsize the capital market transaction with a volume of $175 million for Mexico's hurricane protection on the Pacific coast. Taking into account the already placed cat bond classes A, B and C, the aggregate transaction volume amounts to nearly USD 600 million which is a great success. Munich Re is happy and proud to be part of this transaction and would like to thank all involved parties for making this possible,” said Andreas Müller, Head of Global Retro and ILS, Munich Re.

Catastrophe Bonds Investor Distribution

Summary Bond Terms and Conditions

Disclaimers

Net proceeds of the bonds described herein are not committed or earmarked for lending to, or financing of, any particular projects or programs.  Payments on the bonds described herein are not funded by any projects or programs.

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.  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.