Filed Under:Claims, Catastrophe & Restoration

String of natural disasters to impact Mexico insurer profitability

Workers rescue a religious statue from the heavily damaged former convent of San Juan Bautista, in Tlayacapan, Morelos state, Mexico. (Source: AP Images)
Workers rescue a religious statue from the heavily damaged former convent of San Juan Bautista, in Tlayacapan, Morelos state, Mexico. (Source: AP Images)

While central Mexico continues to recover from September’s devastating earthquake, a natural disaster that left 361 dead, eight still missing and more than 2,000 injured, the nation’s insurers are dealing with consequences of the catastrophe as well.

A new Fitch Ratings report says the Sept. 19 earthquake, along with other natural disasters this year, will contribute to an increase in Mexican insurers’ claims ratio and affect profitability.

Related: A dozen images that reveal Mexico’s earthquake destruction

It’s still too early to determine whether the effects of the disaster will have a capital or rating impact, the report says, but Mexico’s insurance sector as a whole is expected to face catastrophe losses due to high-quality reinsurance coverage and low retained exposures relative to capital.

According to the Fitch Ratings report, affected areas represent 49.6% of premiums underwritten nationally and 51.6% of earthquake premiums, as some of the country’s most populated and economically significant regions, including Mexico City, were affected by the quake.

AIR Worldwide estimates that industry insured losses from Sept. 7’s magnitude 8.1 earthquake alone will land between 14 and 20 billion Mexican dollars. 

But Mexican insurers’ claims ratios were already on the rise prior to September’s earthquake, as the average cost of claims increased from 70.8% of premiums in 2016 to 76.5% in June 2017.

Data from the Association of Mexican Insurance Companies cites an increase in claims in the first half of 2017 and attributes the spike to a number of factors, including hurricane and flood damage, and a significant rise in insured vehicle theft. With these factors in mind, and without full loss-damage estimates, Fitch Ratings says it is too soon to tell whether the September earthquake will be a capital event for insurers.

Related: Mexico is rocked by 7.2 earthquake on anniversary of 1985 devastation

As the report explains, insurer ratings may be vulnerable if a firm is unable to cover losses after reinsurance and catastrophe reserves have been triggered, or if there is particularly high exposure to damaged real estate. Pressure on reinsurance renewals could also affect an insurers' business profile, especially smaller firms that rely heavily on reinsurance. The effect on profitability will also be monitored relative to historical performance.

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