This type of cat bond is typical for insurance and reinsurance companies but obviously unusual for the Mexican government. AIR Worldwide Corporation (AIR) performed the risk modeling and analysis for the Mexican government and estimated “both potential costs resulting from future earthquake scenarios and costs the government could incur from emergency response.
In an article from nationalunderwriters.com Standard & Poor’s credit analyst Maren Josefs pointed out an interesting aspect of these bonds, “investors will lose all their investment if all the trigger conditions are met.” This bond is a risky investment to some but not enough of a deterrent to thwart the $160 million of investor money.
Lets hope no earthquakes occur any time soon in Mexico for the sake of the inhabitants of those areas and the investors. Although I doubt the investors in this bond will hurt much from losing this one investment.
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