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Capital Markets

Catastrophe insurance: Mexico disaster bond

The bad news for Mexicans is that their country is one of the most prone to earthquakes. But at least the government’s financial resources will not be stretched to the limit should one strike following the launch of a $160 million catastrophe bond last month – the region’s first.

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The bond is part of a $450 million, three-year insurance package arranged by Swiss Re and Deutsche Bank.

The bond covers for a potential earthquake in Mexico’s Pacific coast and an area around Mexico City. The bond doesn’t affect the government’s balance sheet, which will pay $26 million in premiums over the three years.

The government is keen to avoid a repeat of the experience of 1985 when an earthquake killed thousands of people and led to pay-outs totalling $250 million.

Mexico also considered a cat bond against hurricane damage but finance minister Francisco Gil Diaz said it would have been too expensive.

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