In 1996, the Mexican government established the Mexico’s Fund for Natural Disasters (FONDEN) in order to reduce the exposure to the impact of natural catastrophes and to recover quickly as soon as they occur. However, FONDEN is funded by fiscal resources which are limited and have been insufficient to meet the government’s obligations. Faced with the shortage of the FONDEN’s resources and the high probability of earthquake occurrence, in May 2006 the Mexican gov- ernment sponsored a parametric CAT bond against earthquake risk. The decision was taken because the instrument design protects and magnifies, with a degree of transparency, the resources of the trust. The CAT bond payment.
