Former Mexican natural disaster fund, a pioneer of sovereign risk transfer through catastrophe bonds.
FONDEN, the Mexican natural disaster fund, long constituted the public mechanism for financing post-disaster reconstruction, funding infrastructure repair and aid to populations. It stood out as a pioneer of sovereign risk transfer by using, from the mid-2000s, catastrophe bonds to cede part of its earthquake and cyclone exposure to capital markets, rather than relying solely on budget resources. This use of sovereign cat bonds made Mexico a textbook case of catastrophe finance applied to states. The fund was administratively dismantled in the early 2020s, but its history remains a reference for understanding how a state can combine budget reserve, insurance and securitisation to manage its catastrophe risk. For reinsurance, it demonstrated the market's appetite for the sovereign risk of emerging countries.
The issuance of catastrophe bonds by FONDEN allowed Mexico to transfer part of its seismic risk to capital markets, foreshadowing other sovereign schemes.
FONDEN, fonds catastrophe mexicain, Fondo de Desastres Naturales