The Category 5 hurricane caused by Hurricane Otis in the Acapulco region of Mexico is currently estimated to cost the local insurance and reinsurance industry between $1.8 billion and $6.5 billion, according to the agency. AM Best rating.
In a report, AM Best noted that “insured losses from Hurricane Otis are likely to fall on reinsurance companies, leading to further hardening of the reinsurance market and creating exposure management challenges for the main companies during the next renewals”.
Typically, insurers cede more than three-quarters of their local exposure to highly rated reinsurance companies through excess-of-loss reinsurance arrangements, allowing them to withstand catastrophe losses.
AM Best added: “With this hurricane and expectations that future wind events will be severely intensified by the El Niño phenomenon, major carriers will likely be under additional pressure due to further increases in reinsurance prices and insurance costs. a capacity crunch.
Property insurance penetration is low in the state of Guerrero which was most affected by Hurricane Otis and for the insurance industry the greatest impacts will be caused by damage to hotels in high value, resorts, commercial and residential infrastructure, with the Acapulco region being the most affected. , as well as business interruption claims due to prolonged power, water and food outages, AM Best said.
Overall, AM Best believes that the Mexican insurance sector is highly capitalized and has strong levels of catastrophe protection to deal with an event as extreme as Otis, but it is clear that the sector global reinsurance company will assume a significant share of the sector’s potential losses. the hurricane.
Economic losses remain estimated at around US$15 billion and AM Best reports suggest that the modeled estimate for insurance sector losses is between US$1.8 billion and $6.5 billion Americans.
But the rating agency believes that Hurricane Otis could be another catalyst for continued reinsurance market hardening, as “the current cycle of reinsurance market hardening could be further exacerbated by Hurricane Otis, and the Future wind events are expected to be greatly intensified by Hurricane Otis. the El Niño phenomenon.
AM Best also notes that some parametric insurance contracts are likely to have been triggered by Hurricane Otis, given the hurricane’s high wind speeds and low central pressure when it hit the Mexican coast near from Acapulco.
Additionally, AM Best also notes that payment is expected to come from the Mexican government’s World Bank-facilitated catastrophe bond, which we have covered in depth.