Mexico renews natural disaster coverage

Mexico's government has completed the renewal process for its catastrophe insurance policy, which is tied to federal natural disaster fund Fonden,

The policy, from rural reinsurer Agroasemex, will offer coverage up to 5bn pesos (US$261mn) through July 5, 2019.

Besides shielding public finances, the finance ministry said in a statement that the coverage will protect public infrastructure against geological and meteorological events as well as forest fires.

Public infrastructure that is covered include schools, roads, water facilities, hospitals and low-income housing, and the risks include earthquakes and hurricanes of any magnitude, as well as floods, volcanic eruption and severe rainfall.

The ministry said the coverage was achieved "at favorable cost to the federal government, with a premium below the average of placements made in the period 2013-2018."

Mexico is a pioneer in the development of this type of coverage. In 2006, it purchased the world's first sovereign catastrophe policy, with a three-year term and coverage of US$450mn.

Fonden's natural disaster coverage was utilized extensively last year with 26 declarations of natural disaster emergencies, which were particularly acute with the earthquakes of September 7 and 19, and the 2017 coverage amount reached 2.78bn pesos.

Mexico has this year stepped up its protection from major natural disasters. In February, it launched a joint US$1.36bn catastrophe bond with its Pacific Alliance trading group partners, Colombia, Chile and Peru, in what the World Bank declared as "the largest sovereign risk hedging operation and the second largest issue in the history of the catastrophic bond market."