24 November 2016 Insurance

Hurricane Otto to hit Central America

Late-season tropical cyclone Otto is projected to strengthen into a hurricane in either Costa Rica or Nicaragua on Thanksgiving, according to catastrophe modeller AIR Worldwide.

After reaching hurricane strength on the afternoon of November 22, Otto weakened to tropical storm status by the morning of November 23 with maximum sustained winds of 70 mph. After moving west-northwestward at 5 mph, Otto is projected to restrengthen into a Category 1 hurricane before making landfall on the Atlantic coast.

The insured losses from this tropical storm are not expected to be significant in the northern part of Costa Rica or the southern part of Nicaragua as the projected landfall locations are sparsely populated with little development and the insurance take-up rates are relatively low for these countries.

About a third of domestic properties in Costa Rica are insured. The country is rated the world's 68th largest non-life insurance market, with automobile and property as the major business classes.

The Nicaraguan insurance market is relatively smaller, hence the domestic property coverage remains low. Automobile is the largest class of non-life business, receiving almost half of premium income. Property is the second largest class with around a third of premiums.

According to AIR, Central America faces the threat of tropical cyclones from both the North Atlantic and Northeast Pacific basins, with a higher frequency of landfall from Atlantic-based storms that typically form at sea and move westward toward land.

The most at-risk exposures are in Pacific and Caribbean coastal cities.

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