Hurricane Polo was a tropical storm with 50mph winds on Monday morning. By Tuesday afternoon, a NOAA Hurricane Hunter aircraft had measured sustained winds near 180mph in its eyewall and a central pressure of 892 millibars, one of the lowest readings on record in the eastern Pacific.
Cat bond investors will be watching the pressure reading more closely than the wind speed.
Polo had weakened slightly by early Wednesday, to 165mph and 905mb, according to the US National Hurricane Center. It was sitting almost still about 200 miles south of Zihuatanejo. Forecasters expect it to turn west-northwest and track parallel to the coast, fairly close in, over the next couple of days. The NHC said it was still unclear how close the storm would get.
Mexico's president, Claudia Sheinbaum, said current information suggested Polo would not make a direct landfall. She told residents of Jalisco, Colima and Michoacán to stay alert. A tropical storm warning runs from Tecpan de Galeana in Guerrero to Punta San Telmo in Michoacán.
Coastal parts of Guerrero and Michoacán could get 3in to 6in of rain, and up to 8in in places, raising the risk of flash floods and mudslides in hilly areas. Schools along parts of the coast have closed.
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Mexico has bought parametric disaster cover for about two decades. In May 2024, the World Bank issued a $175m catastrophe bond for the government, covering named storms on the Pacific coast for four years. Any payout goes to the government through Munich Re and the state insurer Agroasemex.
The bond pays out on the storm's measurements, not on the damage it causes. A hurricane's central pressure has to fall below a set level while its centre is inside defined zones along the coast. Trade reports put that level at about 937mb.
When Polo was a category 4 at 955mb earlier in the week, market commentary suggested it was unlikely to trigger the bond on its forecast track. It has since deepened by more than 60mb, so the pressure condition now looks likely to be met. The remaining question is where the centre goes. If it stays far enough out to sea, bondholders keep their money.
Separately, the government roughly doubled its parametric insurance programme to about $575m at its 2026 renewal.
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When Hurricane Otis formed in October 2023, forecasters did not expect it to reach hurricane strength or make landfall. It hit Acapulco as a category 5.
Moody's RMS estimated private market insured losses at $2.5bn to $4.5bn. Julie Serakos, a senior vice-president at the firm, said "underinsurance is a common theme". The consultancy Integralia estimated that only about 12% of Acapulco's businesses had cover. Otis triggered Mexico's previous Pacific bond, and the finance ministry later said the payout was $60m.
Steve Bowen, chief science officer at Gallagher Re, said at the time that it was becoming "less surprising to see bouts of rapid intensification" as the oceans warm. Polo has strengthened faster than Otis did, though so far farther from land.
Much of the heat behind Polo comes from El Niño. Sea temperatures in the Niño 3.4 region, the part of the Pacific used to measure El Niño, reached 3.05C above average on 19 September. That beat the daily record of 3.02C set in November 2015, and it came about two months earlier in the year.
NOAA's Climate Prediction Center gives a more than 90% chance of a very strong event through the northern hemisphere winter. El Niño has helped keep the Atlantic quiet, as pre-season forecasts expected, but it tends to raise hurricane risk for Pacific Mexico and Hawaii.
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Polo comes as reinsurance prices keep falling. Guy Carpenter said June renewals saw risk-adjusted cuts of 15% to 20%, and property catastrophe rates have now fallen for five straight quarters. Swiss Re put global insured natural catastrophe losses for the first half of 2026 at about $42bn, well below trend. It estimates the full year would reach about $148bn if long-term trends hold.
ICAT has said standard catastrophe models do not yet fully account for El Niño, a gap that matters more with pricing at cycle lows. Chris Jones, chief executive of the International Underwriting Association, has urged the market to "look beyond headline storm counts and consider the wider drivers of loss".
El Niño is also affecting the UK's autumn. The Met Office's latest three-month outlook puts the chance of a warm, wet autumn at one-and-a-half to two times the normal level, with windier weather more likely later in the season. Adam Scaife, the Met Office's head of long-range forecasting, said: "I have never seen an El Niño signal this intense in our forecasts."
UK property insurers paid out a record £6.1bn in 2025, according to the ABI, and domestic flood claims rose 38% to £312m. Deloitte expects home insurers to post a combined ratio of 102.1% this year.
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Polo is forecast to move along the coast through Thursday. El Niño is not expected to peak until later in the year.
