Best’s Commentary: Hurricane Otis Could Pressure Mexican Insurers’ Credit Profiles

Business Wire

MEXICO CITY--(BUSINESS WIRE)--
Insured losses from Hurricane Otis are likely to fall to reinsurance companies, causing further reinsurance market hardening and creating exposure management challenges for primary companies in the upcoming renewals, according to a new AM Best commentary.

Hurricane Otis, which made landfall in Mexico on Oct. 25, 2023, near Acapulco, Guerrero, as a Category 5 storm, is the strongest hurricane ever to hit the country’s Pacific Coast. The Best’s Commentary, “Hurricane Otis Could Pressure Mexican Insurers' Credit Profiles,” notes that Mexico’s regulators have set standards to mitigate insurers’ hurricane risks, including required capital equal to probable maximum losses. Additionally, companies are required to set a catastrophic reserve for hurricanes. Insurers also cede more than three-fourths of local exposure to highly rated reinsurers through excess of loss, enabling insurers to withstand catastrophes. With this hurricane and expectations that future wind events will be severely intensified by the El Niño phenomenon, primary carriers likely will be pressured further by additional reinsurance pricing increases and tighter capacity.

The commentary notes that property insurance penetration in the state of Guerrero is low. For most insurers, the biggest impacts will stem from damage to high-value hotels, resorts, commercial and residential infrastructure, as well as business interruption losses from prolonged power, water and food outages. AM Best will monitor the financial impact of Otis-related losses on rated companies but is of the view that Mexico’s insurance industry is strongly capitalized and has sound levels of catastrophic protection aimed at mitigating the impact of deviations on claims.

To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=337270.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.