The recent magnitude 8.0 earthquake that struck Peru and parts of Ecuador last week is expected to have only a minimal impact on the domestic insurance markets in the region, according to A.M. Best.
In Peru, the event reportedly caused damage to housing infrastructure and schools, as well as disruptions in highway travel due to minor landslides and asphalt shifting.
However, the earthquake largely effected a fairly sparsely populated area of the Amazon, with the U.S Geological Survey (USGS) estimating that initial economic losses will be less than 1% of Peru’s gross domestic product.
The quake had a depth of approximately 68 miles, and could be felt in Ecuador, Colombia and Brazil, although damages in these neighbouring regions were minor, without any collapse of structures.
A.M. Best also noted that insurance penetration in the regions affected by the earthquake is also relatively low, with penetration rates of just 1.8% in Peru and 1.6% in Ecuador.
Additionally, analysts pointed to strong regulatory requirements that mandate the use of catastrophic reserves and require that foreign reinsurers be highly rated, further protecting the capital of companies.
During 2018, five insurers wrote a total of $271 million in earthquake premium in Peru, with one insurer underwriting 52% of the market. These companies retained approximately 32% of the earthquake premium.
Peru’s government also has a cat bond in place as part of the Pacific Alliance issuance, which covers the four member nations of the trade bloc with parametric earthquake insurance protection, issued by the World Bank.
The bond, called IBRD CAR 120, could be be triggered on its single $200 million tranche that protects Peru against earthquakes, specifically at 30% of the principal, or approximately $60 million.
