Mexican insurers will take a hit to profitability from rising claims ratios after the September 19 earthquake struck central Mexico, though it’s still early to judge whether the disaster will also impact the carriers’ capital or ratings, said Fitch Ratings.
Despite the growing insured losses from Q3 natural disasters, the general consensus is that Mexico’s insurance sector is resilient, with reinsurance and strong catastrophe reserves a major mitigating factor.
The sector enjoys a safe market position due to retaining low exposures relative to capital with high quality reinsurance coverage.
According to data from local regulators and the Association of Mexican Insurance Companies, average cost of claims has risen to 76.5% this year compared to 70.8% in 2016, this is coupled by significant increases in claims seen across several lines of business.
Fitch said that without full loss-damage estimates, “it is too early to determine if the recent earthquake will be a capital event for Mexican insurers. In general, though, highly rated entities should be resilient to the events thus far in 2017.”
However, Fitch warned that insurer’s could be vulnerable to rating changes if they are unable to cover losses after reinsurance and catastrophe reserves have been triggered, or in cases with a particularly high damaged real estate exposure.
Smaller firms that rely heavily on reinsurance could see business profiles affected by pressure on reinsurance renewals.
Fitch said it will also monitor rising claims ratios effect on profitability relative to historical performance.
