Insurance industry losses from the impacts of Hurricane Otis in Mexico could range from $1.8 billion to $6.5 billion, with losses likely to fall to reinsurers, according to analysis by AM Best.
The ratings agency notes that while regulators in the country have set standards to mitigate hurricane risks, and companies are required to set a catastrophic reserve for hurricanes, insurers cede more than three-fourths of local exposure to reinsurers through excess of loss, enabling them to withstand catastrophes.
“Nonetheless, in AM Best’s view, the current reinsurance market hardening cycle could be further exacerbated as a result of Hurricane Otis, expecting that future wind events will be severely intensified by the El Niño phenomenon,” says the ratings agency.
AM Best highlights that news reports point to an economic loss potential of $15 billion, while insurance industry losses could range from $1.8 billion to $6.5 billion.
According to AMIS (Asociacion Mexicana de Instituciones de Seguros), 98% of luxury hotels, 80% of mid-range, and 50% of small hotels are covered against catastrophic losses.
Reportedly, more than 4 million people have been affected by the storm, with at least 48 fatalities and 36 missing, and more than 80% of hotel infrastructure disrupted, and upwards of 137 high tension energy lines disabled.
However, property coverage is low in the region, and AM Best therefore expects that for many insurers, the biggest impacts involve damage to high-value hotels, resorts, commercial and residential infrastructure, as well as business interruption losses from prolonged power, water, and food outages.
