Mexican Insurers Will Absorb Losses from Hurricane Willa: A.M. Best

October 25, 2018

Mexico’s insurance industry overall remains well-capitalized and can absorb the financial impact generated from Hurricane Willa, according to an A.M. Best briefing.

Hurricane Willa made landfall on Oct. 23 on Mexico’s Pacific Coast (approximately 300 miles west of Mexico City) as a Category 3 hurricane, which has not occurred since Hurricane Patricia in 2015, according to the Best’s briefing titled “Mexican Insurers Expected to Withstand Hurricane Willa Damage.”

The biggest impact from Willa for primary insurers will be wind and downed tree damage to roofs and cars, as well as business interruption losses from prolonged power outages and deterioration of hotels infrastructure, A.M. Best said.

The states of Jalisco, Nayarit and Sinaloa received the most damage from heavy rainfall, flash floods and landslides, A.M. Best said.

A.M. Best estimated that the total insurance in force for hydro-meteorological risks for the three states, excluding federal infrastructure, amounts to US$176 billion at year-end 2017.

Local insurers retain around 12 percent of the hydro-meteorological premiums in the affected areas while around 8 percent of hydro-meteorological sum insured in the country is located within the affected states, said the ratings agency.

Approximately 87.3 percent of the exposure in the country is ceded to highly rated reinsurers through excess of loss contracts, A.M. Best explained, quoting figures issued by the regulator Comisión Nacional de Seguros y Fianzas (CNSF).

A.M. Best does not expect this storm to have a significant impact on the balance sheets of national reinsurance companies, as catastrophic reserves are sufficient to cover their PMLs.

A.M. Best noted that Mexico’s two regulators – Secretaria de Hacienda y Crédito Público (SHCP) and CNSF – have rules in place to help mitigate the risks to insurers, including required capital for hurricane risk that is equal to probable maximum loss calculations.

The regulators also take into account the geographical and structural characteristics for each company’s risk portfolio through use of the hydro-meteorological risk model from the Engineering Institute of Universidad Nacional Autónoma de Mexico (UNAM), the Best’s briefing added.

In addition, Mexico-based insurers are required to hold a catastrophic reserve for hurricane and other hydro-meteorological risks.

Source: A.M. Best

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