Mexican state Oaxaca received $6.8 million parametric payout after Hurricane John

By Henry Gale

Feb 17 - (The Insurer) - The Mexican state of Oaxaca received a multimillion-dollar payout on its parametric insurance policy after 2024's Hurricane John, according to the state government's financial report for 2024.

The report said 138,750,000 pesos ($6.8 million) in income was received from a parametric hurricane insurance policy in relation to Hurricane John, which hit southern Mexico as a Category 3 storm during late September.

Oaxaca's government published a tender for a parametric hurricane and earthquake insurance policy to cover damage and other economic losses in May last year. It specified that the policy should have a total limit of 555 million pesos, split equally across earthquake and hurricane risks.

It uses a "cat-in-a-polygon" structure, where a payout is triggered if the track of a hurricane meeting certain criteria (the "cat") passes through a specified geographical region (the "polygon"), based on data from the US National Hurricane Center.

Based on the polygon listed in the tender, Hurricane John appears to have triggered Oaxaca's policy narrowly. It strengthened to a Category 3 major hurricane at around midnight GMT on 24 September with a maximum sustained wind speed of 185 kilometres per hour.

John then passed through a corner of the trigger zone before making landfall in the neighbouring state of Guerrero. By 06:00 GMT it had weakened to Category 2, with sustained winds of up to 157 kilometres per hour.

Under the tender's policy structure, a storm with maximum sustained winds of 185 kilometres per hour would trigger a 50% payout of the 277.5 million peso coverage limit for hurricanes. This is consistent with Oaxaca's disclosure that it received a 138.75 million payout in relation to Hurricane John.

In a document outlining the details of its public tenders during Q2 2024, Oaxaca state disclosed that it had awarded the parametric insurance contract to Mexican insurer Ve por Más at a total value of 115,174,800 pesos including VAT.

Hurricane John caused torrential rains in Oaxaca and other southern states in Mexico, according to Reuters reporting at the time. Power outages were reported and schools were ordered to be closed ahead of its arrival. Local media reported three deaths in Oaxaca.

Martin Hotz, head of parametric nat cat at Swiss Re Corporate Solutions, told Parametric Insurer last October that a public sector entity in Mexico covered by Swiss Re had received a parametric payout following Hurricane John. It was not clear at the time of publication whether this referred to the state of Oaxaca, or another public sector entity also covered by parametric insurance.