In a positive sign of continued use of private insurance and reinsurance funds to support natural disaster and disaster insurance needs, the Mexican government has expanded its $250 million traditional insurance fund.
As part of the government’s economic plan for 2023, the Mexican Ministry of Finance and Public Credit explained that the disaster insurance with a limit of 5,000 million Pesos was also organized.
Therefore, it is about US$ 250 million of disaster insurance protection that the Mexican government will have in place until 2023, while it continues to use risk transfer as a financial instrument to raise funds after disasters to support rehabilitation and reconstruction.
Disaster insurance is seen as a financial shield for the economy and population of Mexico and its government, as the country recognizes the need for additional funds in the event of catastrophic disasters.
It is a public financial shield, which means that what is not destroyed in any disaster and is used for recovery, is a dedicated financial system that pays out in the event of a disaster.
Catastrophe insurance comes from July 5th every year, so this update happened a while ago, but recently it appeared in government files from the Ministry of Finance and Public Debt.
There is an accident insurance claim, about US$ 13.5 million per event and in aggregate about US$ 35 million per year, more than that, we understand.
Catastrophe insurance is designed to work with the economic impact of Mexico, which is a long-term source of additional disaster protection products through the World Bank, international insurance companies, and with the help of investors in capital markets from insurance-linked securities ( ILS) market.
Mexico’s Ministry of Finance and Credit explained in its financial planning, “Mexico has the knowledge and organization to take risks in private and foreign markets.
“Government funds in fiscal year 2023 will have a defense system based on potential risks: insurance against damages caused by natural events (catastrophe insurance) and disaster bonds.”
Mexico has been accessing large markets for catastrophe insurance and insurance coverage through the use of catastrophe bonds since 2006.
The country has benefited from disaster protection with the support of the World Bank since 2006 through its CAT-Mex Ltd project.
Mexico has repeatedly restructured its capital markets through the ongoing World Bank bailout program for cat bonds.
This included MultiCat Mexico 2009 Ltd. and MultiCat Mexico Ltd. (Series 2012-1) cat bonds, after which the program changed to use the platform of the World Bank of IBRD for providing capital-at-risk documents, and IBRD / FONDEN 2017 transaction.
Mexico participated in the provision of the Pacific Alliance with the IBRD CAR 118-119 agreement in 2018, and recently returned to the ILS market with its largest disaster agreement, the $485 million IBRD / FONDEN 2020 agreement in March 2020 that is still available. -press today.
In all cases, the beneficiary of disaster insurance provided by disaster bonds was Mexico’s natural disaster fund, FONDEN.
As we said before, FONDEN no longer exists and the beneficiary of disaster insurance in Mexico, traditionally and unfortunately, is now the Treasury or Office of the Treasury and Public Debt (so within the Ministry of Finance).
The most recent World Bank IBRD released FONDEN 2020 disaster management is still at risk until March 2024, but there was uncertainty about Mexico’s desire to continue with the program at the time of the change of beneficiaries and the closure of FONDEN.
Therefore, the renewal of traditional disaster insurance is seen as a strong signal of the Mexican government’s intention to continue using insurance and risk adjustment to protect its income from natural disasters and natural disasters, which indicates that the disaster program will continue. .
Mexico is also planning ahead, with the desire to renew its disaster situation in the following year, with updated tools that are expected to be used and new data to inform the management of natural disasters and risk-based thinking and planning.
This will be very important before the Mexican World Bank’s 2024 disaster recovery plan and the use of modern risk assessment tools will help the country better plan what it needs and possibly get financial support for cat rehabilitation.
It emphasizes the commitment to providing emergency funds in the Mexican government, and indicates that the capital markets in this arrangement will continue.
There are concerns about the closure of FONDEN though, as the Mexican government now has to budget every year for disaster relief and reimbursement, as well as insurance. In the past, it was through the calamity fund, which seemed to be invulnerable if other financial needs came up.
Finally, it is possible that the cost of catastrophe insurance in Mexico was higher during the recent reform, due to the suspension of international catastrophe insurance and reinsurance markets. So again it is encouraging to see the continued use of insurance in the country, as another sign that the motivation to protect its people has not changed since the closure of the disaster fund FONDEN.