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The World Bank (International Bank for Reconstruction and Development, or IBRD) issued catastrophe bonds that will provide Mexico with financial protection of up to $360 million against losses from earthquakes and tropical cyclones. Mexico is one of the world’s most vulnerable countries to natural disasters.

Nearly one third of its population lives in areas that are exposed to hurricanes, storms, floods, earthquakes, and volcanic eruptions. In economic terms, this translates into 71 percent of the country’s GDP considered to be at risk from two or more natural hazards. 

The bonds were issued in three different structures to provide coverage against three types of disasters: earthquakes, Atlantic tropical cyclones, and Pacific tropical cyclones. 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, or FONDEN. 
Payouts will be triggered when the earthquake or tropical cyclone 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 Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft (Munich Re), a German reinsurance company, and Agroasemex, S.A., a Mexican state-owned insurance company. 

GC Securities, a division of MMC Securities LLC is the sole book runner for the transaction.  GC Securities and Munich Re acted as joint structuring agents. GC Securities and Munich Re Capital Markets GmbH, a wholly owned affiliate of Munich Re, acted as joint managers. 
The bonds were issued under IBRD’s “capital at risk” notes program, created in 2014. One of the purposes of this program is to transfer risks related to natural disasters or pandemics from developing countries to the capital markets. Bonds issued under this program offer investors a different risk/return profile than regular IBRD bonds since investors may lose part or all of their investment. 
In 2006, Mexico became the first sovereign to issue catastrophe bonds. Mexico issued additional catastrophe bonds in 2009 and 2012 using the World Bank’s MultiCat Program. The MultiCat Program helps countries issue catastrophe bonds to insure themselves against the risk of natural disasters. In the framework of the MultiCat Program, the World Bank acts as arranger; assists in formulating disaster risk management policy; offers off-the-shelf documentation; supports preparation of legal and operational framework; and selects service providers.