Reinsurance News

Hurricane Delta sweeps across Mexico’s coast, takes aim at US

8th October 2020 - Author: Matt Sheehan

Hurricane Delta is tracking towards the US Gulf Coast after making its first landfall on Mexico’s Yucatan Peninsula as a Category 2 storm.

Delta buffeted the northern coast of Quintana Roo, Yucatan with wind speeds of 175km/h (110mph), having weakened slightly from its earlier Category 4 strengths.

The storm is expected to intensify again to Category 3 or 4 as it crosses the Gulf of Mexico, with a second landfall in Louisiana currently forecast by the NOAA on Friday evening.

Delta is the 26th named storm of the 2020 Atlantic hurricane season so far, and is expected to drive some significant losses for the insurance and reinsurance industries.

In Mexico, life-threatening storm surges and strong winds were reported along the tourist-heavy coastal areas of the Yucatan Peninsula, with thousands of residents and holiday-makers moved into shelter for safety.

Damages included power outages, fallen trees, shattered windows and some flooding in urban areas, although no deaths have yet been reported.

Rating agency AM Best notes that the insurance industry in Mexico retains around 15% of insured catastrophe risks, with insurers tied to large financial institutions in the country holding around 30% of that net premium.

Companies with this risk profile generally have strong reinsurance programs, it added, but claims management could represent a challenge given the impact of the storm and restrictions on mobility due to the COVID-19 pandemic.

Delta could pressure bottom line results for some insurers in Mexico, analysts warned, if piled on top of already-substantial coronavirus losses this year.

The hurricane also has the potential to activate the Mexican Government IBRD/FONDEN catastrophe bond that was issued in March 2020, particularly the USD 125 million tranche of Class C notes.

This would happen if Hurricane Delta’s central pressure was found to have dropped to around 930-940 mb, although reports currently suggest that the pressure has remained above this level.

AM Best believes Mexico’s re/insurance industry should be sufficiently capitalized to absorb any losses from Delta without issue, given that national regulators SHCP and CNSF have rules in place to help mitigate catastrophe risk for insurers.

With Delta now taking aim at the US, governors in Alabama and Louisiana have declared states of emergency and begun mandatory evacuations.

The exact track of the storms remains uncertain, but these states will be taking no chances having already experienced the full force of earlier hurricanes this year, including Laura and Sally.

Currently, the National Hurricane Center is warning of the potential for dangerous storm surges, wind and rainfall from Louisiana to the western portions of the Florida panhandle, with up to 12 inches of rain and flash flooding possible in some areas.

Due to the unusual number of hurricanes this year, meteorologists have had to resort to naming storms from the Greek alphabet after Wilfred exhausted the traditional list of 21 names last month.

This is only the second time that Greek names have been used (the last time was in 2005 when six Greek names were used in a season that had 28 storms) and speaks to the unprecedented hurricane activity that has been seen in the Atlantic this year.

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