2017-09-08 - Av Henrik Sjöholm

Mexico 8.1 earthquake likely to trigger a cat bond

This morning, an earthquake of magnitude 8.1 (preliminarily) occurred just off the coast of Chiapas, Mexico. Initial reports indicate widespread destruction and several fatalities in the region. The extent of damages is not possible to assess until daybreak local time.

The earthquake is likely to have triggered the IBRD/FONDEN 2017 class A cat bond, a bond sponsored by the World Bank to provide Mexico with financial resources for disaster relief and reconstruction after natural catastrophes. The bond has a parametric trigger based on earthquake magnitude to facilitate a fast settlement to release resources rapidly after an event. The bond’s share of the latest net asset value was less than 1%.

The bond can trigger fully or partially. At this time, it is too early to finally determine the amount as it depends on the final assessment of magnitude by the US Geological Survey. Entropics will post updates as they become available.

The earthquake has been given a “red alert” by the USGS, both in terms of estimated fatalities and estimated economic losses. If the assessment of the magnitude stands, it is the most powerful earthquake in Mexico since 1932, though the 8.0 magnitude Mexico City earthquake in 1985 was more devastating, due to the proximity to densely populated areas.

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