AM Best: Hurricane Erick insured losses in Mexico 'well below' 2023's Otis

By Isha Marathe

June 27 - (The Insurer) - The initial estimated insurance industry losses for Hurricane Erick, which made landfall along Mexico's Pacific Coast last week, will mainly be for business interruption losses from prolonged power outages, flooding, and food shortages, AM Best said.

Hurricane Erick rapidly intensified into a Category 4 storm on June 18 before making landfall early the following morning as a Category 3 storm in Santiago Pinotepa Nacional. It then deteriorated into a Category 1 storm, causing heavy rainfall, flash floods, landslides, and power outages over coastal cities and neighboring municipalities, mainly Guerrero and Oaxaca.

Potential losses in the tourist city of Acapulco, Guerrero may reach $99.2 million, stemming from paralyzed economic activity involving mass closure of more than 18,000 businesses, the Mexican chamber of commerce found.

Asociación Mexicana de Instituciones de Seguros said that 11.9% of residences and 6% of vehicles are covered against catastrophic losses in Guerrero, while 6.6% of residences and 13.7% of vehicles are covered in Oaxaca.

In AM Best's view, the estimated insurance industry losses for the storm will stand "well below" the insured losses from Hurricane Otis in 2023, which came up to $1.97 billion.

While some material losses are expected for commercial and residential infrastructure, as well as high-value hotels and resorts, AM Best said that parametric insurance contracts are unlikely to be triggered.

However, Parametric Insurer reported last week that the state of Oaxaca is likely to receive a payout on its $21 million parametric hurricane policy.

Hurricane Erick’s barometric central pressure reached 939 mb at peak intensity and 950 mb at landfall, both above the 937 mb threshold necessary to activate a partial payout from the IBRD Mexico Pacific coast hurricane catastrophic bond, AM Best said.

No significant impact is expected for investors or the World Bank.

“Mexico’s insurance industry is strongly capitalised and has sound levels of catastrophic provisions aimed at mitigating the effect,” said Salvador Smith, associate director, AM Best.

“We’ll continue to monitor the financial impact of Hurricane Erick on rated companies, as well as credit risk with counterparts and liquidity among rated insurers.”

AM Best added that the current reinsurance market cycle could be further hardened because of Hurricane Erick and the ongoing rapid development of tropical storms into severe hurricanes triggered by rising ocean temperature.