Most global reinsurers to take “negligible” share of hurricane Otis loss

Hurricane Otis is expected to cause up to US $16 billion in economic losses in Mexico and insurers will call on their reinsurance support, Fitch Ratings has said.

But, while the insurers most exposed tend to cede a significant proportion of their losses from catastrophe events to the global reinsurance market, the rating agency said the effect to global reinsurers will be “negligible”.

Fitch Ratings provided some useful colour as to the extent of the damage from the category 5 major impacts hurricane Otis brought to the Acapulco and Guerrero state region of Mexico last week.

Fitch said that the National Insurance Association (AMIS) of Mexico has reported damage to 80% of hotels in Acapulco, while some 16,000 houses and 20,000 vehicles in the region have been damaged by hurricane Otis.

Fitch said, “As insurers are generally more reliant on ceding catastrophe losses to reinsurance partners to limit net retained losses, there is low NWP exposure to P&C.”

But clarified that, “We expect most global reinsurers to have a share of the losses given the heavy damage to tourist areas that are likely to have insurance coverage.

“However, the losses will be negligible for the global reinsurers, which are geographically diverse.

“The Mexican reinsurance market is dominated by foreign reinsurers, with less than 3% of written premiums from local insurers.”

Overall, Fitch Ratings said that hurricane Otis in Mexico, while a significant drive of economic losses in affected areas, “is expected to have a negligible credit impact on the earnings of the Mexican insurance sector, and will not affect the capital of individual (re)insurers.

“The effect of the storm on the Mexican insurance industry is expected to be controlled and well within ratings expectations. The sector is well capitalized and regulated, and will withstand higher insured and economic losses from the storm, given the market’s low penetration and high cession rate that reduce earnings and capital pressures for local private insurers. ”

Also read: Hurricane Otis insured loss estimated up to US $6.5bn: AM Best.