Major hurricane Erick has made landfall on the coast of Mexico with 125 mph sustained winds in the state of Oaxaca and the NHC reports the minimum central pressure at 950mb, which is above the level where the World Bank facilitated $175 million IBRD CAR Mexico 2024 (Pacific) parametric catastrophe bond would be triggered.
As we said in our earlier article, that central pressure was only two millibars above the level needed to activate a partial payout from the IBRD Mexico Pacific coast hurricane catastrophe bond.
The trigger threshold where a payout would be due from the World Bank parametric catastrophe bond, which provides Pacific coast named storm disaster insurance to the government of Mexico, is for a storm with a central pressure at or below 927mb to breach the parametric named storm box drawn near to the coastline.
As we said in our second update on the hurricane’s potential threat to the catastrophe bond, as of 09:00 UTC the National Hurricane Center had updated its estimate to a 940mb minimum central pressure, so slightly higher.
Now, with dangerous major hurricane Erick having made landfall, the minimum central pressure at that time, 12:00 UTC, is reported at an estimated 950mb, so higher still and further away from the threshold for the parametric cat bond to face a payout.
It’s important to note that there could still be some uncertainty, but sources we’ve now spoken with in the last hour do not believe the catastrophe bond will face a payout, unless the reported central pressures were revised down.
Suggesting that, investors will now view the risk to Mexico’s Pacific coast named storm catastrophe bond as greatly reduced. Although the view of risk may not subside completely until some analysis on how the central pressure extrapolates along hurricane Erick’s track, at the point it would have breached the parametric box for the cat bond, has been completed.
But, with the central pressure so much higher at landfall and never having been reported as low as would have been needed to trigger the cat bond, it’s possible that an official calculation agent report may not even be deemed necessary for this hurricane event.
Significant impacts are anticipated for the landfall region from hurricane force winds and storm surge, while double digit inches of rainfall are anticipated further inland, so the threat to the local area remains meaningful.
However, the mountainous region of Oaxaca, Mexico where landfall has occurred is expected to degrade hurricane Erick rapidly now.
You can read all about the IBRD CAR Mexico 2024 (Pacific) catastrophe bond and more than 1,000 other cat bond transactions in the extensive Artemis Deal Directory.
