Reinsurance News

Insurers expect minimal losses from Mexico’s September earthquakes

30th September 2022 - Author: Kassandra Jimenez-Sanchez

Ratings agency AM Best does not expect claims activity to increase significantly owing to the recent earthquakes that hit Mexico in September, as few minor damages have been reported and are unlikely to result in large insurance losses.

am-best-logoThe 7.7° magnitude shake on September 19 and one 6.9° on September 22 hit the Latin American country with Coalcomán, Michoacán, as the epicentre for both. The shakes could be felt in Jalisco, Colima, and Mexico City, among other states.

According to AM Best, other than reports of visible cracks in the walls and facades of some buildings and homes in the states near the epicentre, as well as few casualties, no significant damages have been reported in metropolitan areas.

The agency said: “AM Best does not expect to see any ratings movement on the Mexico insurance companies it follows, as these events did not result in significant structural damages, and most of the impact was felt in states with low insurance penetration.”

Mexico is susceptible to earthquake perils, having experienced 17 earthquakes with a magnitude of 6° or higher in the last five years.

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This catastrophe experience, according to AM Best, has translated into a rise in insured amounts for the earthquake line (compound annual growth rate of 3.3%), as well as in gross written premiums (CAGR of 8.9%) from 2015 to 2022.

The number of active policies has also increased significantly, almost doubling in size in 2021, up 85% for a CAGR of 10.8%, in comparison to 2015, the agency noted.

Mexico’s government has a catastrophe bond in the insurance-linked securities markets of up to $485 million against losses from earthquakes and tropical cyclones. It was issued in March 2020 and is payable to Mexico’s Treasury and Public Credit Office, following the shuttering of FONDEN.

In addition, as the Mexican government has renewed its $250 million cat protection layer with the World Bank in July 2022, it has also signed its intent to continue to shield public finances against any natural disasters that take place in 2023.

AM Best said: “In Mexico, disaster risk financing is set by catastrophe insurance, which works alongside cat bond coverage. These resources can be used to mitigate the impact of the earthquake on infrastructure and the population in affected areas.”

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