Property Claim Services (PCS), a division of Verisk that collects and aggregates the insurance industry loss data widely used by reinsurers, has announced the launch of its catastrophe loss index for Mexico.
PCS Mexico will provide full coverage for natural and man-made events across Mexico with total re/insurance industry loss estimates of at least MX $300 million (US $15 million).
The launch was delivered in collaboration with Asociación Mexicana de Instituciones de Seguros (AMIS), a body that affiliates more than 95% of the insurance companies in Mexico.
Mexico will be the fourth country to be covered by PCS, following the US, Canada and Turkey.
PCS noted that Mexico’s catastrophe profile has many similarities to the US and Canada, given the frequent and severe activity of tropical storms, earthquake, and hail in the country, among other perils.
Coverage in Mexico will also use the same loss estimation methodology that PCS has in place for the US, with the exception of the threshold for event designation(MX $300 million) and the threshold for initiating the resurvey process (MX $1 billion, or US $50 million).
PCS and AMIS expect the launch of PCS Mexico to have fairly quick impact on the global insurance-linked securities (ILS) market, as eight catastrophes bonds since 2006 have included Mexico.
“When we look for a new market to enter, a few factors are crucial,” said Tom Johansmeyer, head of PCS. “We look for a market with an insurance industry large enough to produce meaningful insured losses (within the context of reinsurance and retro), sufficient risk transfer sophistication for an industry loss index to be useful, and enough large catastrophe events for PCS to develop a historical data set and produce estimates on an ongoing basis.”
“Some regions may have the occasional big catastrophe – like Romania in 1977 – but lack the frequency to be of day-to-day concern for the reinsurance sector,” he explained. “Others may have plenty of catastrophe activity but not produce large insured losses.”
“Mexico is the sort of market that benefits from independent loss aggregation, as it clearly meets our criteria for market entry. Since our criteria are aligned with client needs, this means that the launch of PCS Mexico should be of direct and immediate value to the industry.”
Johansmeyer continued: “Like Canada, part of the value of PCS Mexico is in the fact that it now allows for regional ILWs and catastrophe bonds. Several transactions use PCS for the United States and Canada, particularly for earthquake, and now the same is possible for United States and Mexico transactions. Along both borders, earthquake and tropical storm can be of concern.
“I’m curious to see whether any future catastrophe bonds include coverage for United States/Canada and United States/Mexico events. PCS Mexico is not limited to one or two perils. Rather, we take a full view of the region.”
Ted Gregory, director of operations at PCS, added: “The launch of PCS Mexico further solidifies PCS’s important role within the global insurance community. With Mexico susceptible to a multitude of significant perils, such as earthquakes, volcanic activity, and hurricanes on both coasts, PCS looks forward to serving our insurance community in Mexico and abroad with our collective efforts to provide exceptional service.”
Manuel Escobedo, AMIS president, also commented: “For many years, the insurance industry in Mexico has produced catastrophe loss estimates to inform our insureds, shareholders, and financial authorities. With this ISO/PCS agreement, our estimates will be more timely and consistent.”
“The ISO/PCS platform will allow Mexican insurance companies to access robust information to calibrate their catastrophe risk models,” said AMIS CEO Recaredo Arias. “This will benefit both insurers and insureds, while paving the way for product innovation.”
Finally, Dario Luna, managing partner at Akua Capital, stated: “We are pleased to have partnered with PCS to bring Mexico into international standards for catastrophe loss information. PCS Mexico presents a range of innovation opportunities and will surely trigger the interest of other Latin American countries.”
