Swiss Re building in London. © 2009 Swiss Re

Zurich, Switzerland (GenevaLunch) – Swiss Re, a major Swiss reinsurance company, announced 20 October it had issued $290 million in catastrophe bonds for Mexico in four categories, or tranches, together with Goldman Sachs. The bonds allow Mexico to plan for catastrophes like hurricanes and earthquakes and pass on the costs to private investors. It is the first time that a country taps the financial markets for catastrophe insurance.

The bonds mature in three years. The investor receives an annual interest rate just as with any other bond, and the principal amount at maturity, unless a major catastrophic event affects Mexico, in which case the funds are transferred to Mexico to help pay for the costs of the catastrophe. In the case of the bonds just issued, $140m are reserved for an earthquake, and the other three tranches are for the effects of storms on the Atlantic and Pacific coasts. The Atlantic tranches are considered slightly more risky

The bonds just issued fall under the World Bank’s MultiCat programme, which is a platform that allows countries and other public entities to share the cost of a future catastrophe with private investors. Mexico’s bond issue is the first in the Multicat program. The bonds mature 19 October 2012.

Links to other sites: Bloomberg, Romandie News, Vanguard

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