Mexico’s insurers can absorb hurricane Willa losses
Mexico’s insurance industry overall remains well-capitalized and can absorb the financial impact generated from Hurricane Willa, according to AM Best.
Hurricane Willa made landfall Oct. 23, 2018 on Mexico’s Pacific Coast as a Category 3 hurricane, something that has not occurred since Hurricane Patricia in 2015, according to the Best’s Briefing. The hurricane was later downgraded to a tropical depression.
Willa is expected to affect mainly the states of Jalisco, Nayarit and Sinaloa, with heavy rainfall, flash flood and landslides being the main risks of this storm. The hurricane struck the coast approximately 300 miles west of Mexico City.
AM Best expects that for most primary insurers, the biggest impacts from Willa 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. Damage from coastal flooding and inland flash flooding is likely.
The total insurance in force for hydro-meteorological risks for the states of Jalisco, Nayarit and Sinaloa, excluding federal infrastructure, amounts to $176 billion at year-end 2017, according to AM Best estimates. Local participants retain around 12 percent of the hydro-meteorological premiums in the affected areas and that around 8 percent of hydro-meteorological sum insured in the country is located within the affected states, according to the agency.
The Mexico regulators, Secretaria de Hacienda y Crédito Público (SHCP) and Comisión Nacional de Seguros y Fianzas (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, AM Best noted.
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). Furthermore, Mexico-based insurers are required to hold a catastrophic reserve for hurricane and other hydro meteorological risks.
In addition, according to CNSF, 87.3 percent of the exposure in the country is ceded to highly rated reinsurers through excess of loss contracts. AM 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 (probable maximum losses).
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