MultiCat transaction in Mexico

Swiss Re Capital Markets was co-lead manager and joint bookrunner on the USD 290 million MultiCat Mexico 2009 Ltd. Insurance-linked securitization. Covering both hurricane and earthquake risk, the “MultiCat Mexico” transaction is the first to be issued as part of the MultiCat Program, which was developed by the World Bank’s International Bank of Reconstruction and Development (IBRD), in partnership with the Mexican Government and Swiss Re.

Mexico has become one of the leaders among emerging economies in the implementation of innovative financial risk management solutions in order to protect it against the impact of economic costs relating to disaster. The MultiCat Program was developed to provide a catastrophe bond issuance platform for World Bank member countries, allowing them to access financing for disaster risk insurance from the capital markets. MultiCat Mexico runs for three years and provides the government with rapid funding to finance disaster relief efforts after earthquakes and hurricanes.

The bond was sponsored by the Mexican government’s Fund for Natural Disasters (“FONDEN”) that provides support to Mexico’s general population after natural catastrophes. FONDEN entered into an insurance contract with state insurer Agroasemex, which was wholly reinsured by Swiss Reinsurance Company Ltd, and which ceded the entire risk to MultiCat Mexico 2009 Ltd.

The MultiCat Program allows countries to buy coverage for a variety of risks including flooding, earthquakes, hurricanes and windstorms. The program aims to help countries obtain cost effective insurance cover against natural catastrophes and offers investors the chance to diversify their portfolios through assets that are uncorrelated with financial markets, thereby enlarging the investor base for cat bonds.

For more information about this deal, please read this interview.

Details of MultiCat Mexico Transaction

The MultiCat Ltd. bond was issued in four tranches of Series 2009-1 Mexico Notes, which are scheduled to mature October 19, 2012. The details of the Notes placed in the initial offering are the following:

Series	Peril	Size in millions	Rating	Expected Maturity
2009-I Class A	Earthquake	USD $140m	B	October 19, 2012
2009 –I Class B	Pacific hurricanes	USD $50m	B	October 19, 2012
2009 –I Class C	Pacific hurricanes	USD $50m	B	October 19, 2012
2009- I Class D	Atlantic hurricanes	USD $50m	BB-	October 19, 2012

AIR Worldwide Corporation (AIR) provided the expert risk modeling analysis and Munich Reinsurance Company acted as Advisor on the transaction.

The MultiCat Program Notes were sold in a private placement pursuant to Rule 144A of the U.S. Securities Act of 1933, as amended, (the “Securities Act”) and have not been registered under the Securities Act or any state securities laws; they may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.

The partnership between Mexico and the World Bank, under its MultiCat Program, has allowed us to efficiently transfer a pool of catastrophic risk - earthquake and hurricane - to the market for the first time, and we are very satisfied with the results achieved. We are also very proud to have contributed to the creation of this platform that also makes a new set of catastrophe risk management instruments available to other members of the World Bank

Alejandro Werner
Vice Minister of Finance, Government of Mexico

The MultiCat Program is an important step on the road to improving liquidity, reducing transaction costs and facilitating diversification across countries and risks for catastrophe-bond investors. We believe this will translate into much better access to coverage on significantly better terms for the governments and other public agencies that use it to manage disaster risk, and thus lessen the financial and economic impact of natural catastrophe

Kenneth Lay
Vice President and Treasurer of the World Bank