Estimates for Mexico's S19 quake vary, but insurers ready

With the death toll from the September 19 quake that struck central Mexico climbing to 324 on Monday, damage assessment is moving slowly but is well underway.

While early insured-loss estimates vary between US$1.2bn and US$4.8bn, a comment from S&P reaffirmed confidence in the local industry's ability to absorb the impact of September's two major seismic events.

Citing the 8.1-magnitude earthquake on September 7, Hurricane Katia and the September 19 event, the ratings agency said in a note: "In the wake of these natural disasters, Mexico's insurers will show resilience. We believe that insurers' adequate catastrophe risk management, reinsurance protection, and a prudent regulatory environment that requires high levels of equalization reserves will help to balance insured losses."

S&P noted that Mexican insurers held equalization reserves amounting to around US$2bn as of March 2017. The research added that the four firms with the highest net national catastrophe premiums written - Seguros Banorte (249mn pesos or US$13.9mn), Seguros BBVA Bancomer (192mn pesos), Seguros Inbursa (142mn pesos), AXA Seguros (83mn pesos) - held equalization reserves of 1.04bn pesos, 4.18bn pesos, 11.09bn pesos and 3.53bn pesos, respectively.

EARLY S19 INSURED LOSSES VARY WIDELY

Mexico-based natural disaster risk analysis firm ERN estimated the insurance sector impact from the September 19 earthquake at US$4.8bn, projecting a 4.05% insurance sector estimated loss in the state of Puebla, where the epicenter was located. ERN saw the estimated loss for Mexico City at 1.65%.

Cat risk modeler AIR Worldwide, however, offered a much lower range of between US$735mn and US$2.1bn, a wide range "based on assumptions about take-up rates in Mexico (the percentage of properties actually insured against the earthquake peril), about which there is considerable uncertainty."

Global risk modeler RMS in its estimate said insured losses should not exceed US$1.2bn, though acknowledged that the economic losses were likely to be between US$4bn and US$8bn.

"It's still early to assess the economic impact of those events in exact terms, and it isn't currently clear whether insurance losses will be greater in infrastructure, residential property, or commercial property," said S&P. "However, we expect that the Mexican government will primarily shoulder the costs of reconstruction. Given non-life insurance's low penetration in the sector in Mexico (a mere 1.25% of GDP), we expect insured losses to represent only a very small fraction of the overall cost."

The ratings agency added it ultimately did not expect these events to materially impact the solvency of rated Mexican insurers, which are generally well protected by both reinsurance coverage and prudent reserve levels.

"However, if insurers were to consume their natural catastrophe reserves to absorb claims, their capital and earnings could flag, potentially weakening the ratings on a number of companies," added S&P.