OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best expects that the damages to infrastructure and housing in Mexico to be limited following the largest earthquake in a century and the strongest since the 1985 Mexico City earthquake. Since states near the epicenter such as Oaxaca and Chiapas hold some of the highest poverty levels within the country, and therefore experience lower insurance penetration, A.M. Best does not expect to see any rating movement on the Mexico insurance companies it follows.
A new Best’s Briefing, “Major Earthquake Strikes Southwestern Mexican Coast,” states that Mexico City has so far reported few minor damages to infrastructure following the magnitude 8.1 quake, which should not culminate in large insurance claims for the industry. As of December 2016, Mexico’s insurance industry reported earthquake catastrophic reserves of USD 999 million (MXN 20 billion), representing approximately 10% of the industry’s adjusted surplus, incorporating earthquake catastrophic reserves. Overall, while it is still too early to measure the full extent of the damages and losses derived from this event, A.M. Best expects claims activity to increase; however, net losses after reinsurance are not expected to translate into a significant drop in bottom-line results, as the industry’s catastrophe risk retentions are at conservative levels.
Additionally, the Mexico’s government has in place a catastrophe bond for up to USD 360 million against losses from earthquakes and tropical cyclones, issued in August 2017, which would be payable to Mexico’s fund for natural disasters, FONDEN. Such resources could be used to mitigate the impact of the earthquake on infrastructure and the population in affected areas.
A.M. Best will continue to assess the impact of this event on the system and on the balance sheet of its rated insurers.
To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=265555.
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