RMS puts hurricane Otis industry loss below US $4.5bn

Risk modeling specialist Moody’s RMS has estimated that losses in the insurance and reinsurance market resulting from the recent major Hurricane Otis and its devastating effects on Mexico’s Pacific coast in the Acapulco region, will be between 2.5 and 4.5 billion dollars.

hurricane-otis-mexico-disaster-bondThat’s a lower range than rival Verisk estimated earlier this month, when the company gave an estimate of insurance industry losses from Hurricane Otis in somewhere between 3 and 6 billion US dollars.

RMS said its estimate represents insured losses associated primarily with wind damage from Hurricane Otis, reflecting property damage and business interruption losses across the residential, commercial, industrial and automobile insurance industries.

It also takes into account the potential for post-event loss amplification (PLA), inflationary trends and unmodeled sources of losses, including infrastructure damage.

However, this does not include losses related to sovereign protection programs, in the form of traditional insurance or reinsurance, or in the form of insurance-linked securities (ILS) such as Fonden’s catastrophe bond, which is likely to be triggered by the hurricane.

Jeff Waters, product manager for North Atlantic hurricane models at Moody’s RMS, commented: “Major Hurricane Otis was an unprecedented event on several fronts. As a Category 5 storm with sustained winds of 165 mph, it is the strongest hurricane on record in the Acapulco region and all of Mexico, aided by a period of record rapid intensification in the 24 hours preceding its landfall. Observational wind speed data – although limited – suggest that a large portion of the exposure and population was affected by major hurricane-level wind gusts. Before Otis, this region of Mexico had never experienced a Category 5 hurricane, highlighting the importance of using disaster models to fill gaps associated with the historical record, understanding events that have not yet occurred. products but which could occur and the potential impacts. on current exposure at risk.

RMS said insured losses from Hurricane Otis would be due to wind damage, with minor contributions from storm surge and rainfall-induced flooding.

Insured wind losses are expected to fall largely on the commercial lines sector of the industry, including commercial multifamily housing, hotels, resorts and high-rise buildings that suffered significant damage from the hurricane.

Julie Serakos, senior vice president at Moody’s RMS, added: “Underinsurance is a recurring theme in determining overall damage estimates from this event. It is unlikely that much of the damage risk will be insured up to the full value of the structure or insured at lower limits, particularly in inland areas. We expect most insured losses to be due to damage to coastal commercial and residential areas. Nonetheless, we expect Otis to be one of the costliest hurricanes in Mexican history, both from an economic and insured loss perspective.

Rajkiran Vojjala, vice president of model development at Moody’s RMS, also said: “The strongest winds of the event caused damage to much of the modern skyscrapers along Acapulco Bay, including apartment complexes, hotels and resorts. Aerial imagery and reconnaissance completed to date shows that Otis caused some of the most incredible wind damage to modern high-rise structures we have ever seen, as observed winds far exceeded design wind speeds predominant for the region. While several high-rise buildings survived record gusts, thanks to well-designed structural systems put in place for seismic safety, their lightweight cladding and seismic-enhancing exteriors, withstood the brunt of high winds and been destroyed. Recovery and reconstruction efforts could take years. During this period, we expect a high number of total constructive losses given the severity of the damage and the complexity of the repairs.

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