Devastation from Hurricane Otis is just beginning for insurers in Mexico

Even with a low level of coverage, Mexican insurers will bear the greatest impact in the recovery from the devastating cyclone Otisas a category 5 hurricane, last Wednesday in Acapulco, in the southern state of Guerrero, one of the main tourist destinations in Mexicoestimated this Friday an analysis by Moody’s Investors.

“The full extent of the damage has not yet been determined, but we expect Mexican property and casualty insurers focused on the area to incur losses and report negative results in 2023, which could affect their solvency indicators.“, reads the rating agency’s report.

Meanwhile, he estimated that for banks, telecommunications companies and the state electricity company Comision Federal de Electricidad (CFE) the losses are limited, so he expected that their credit effects will be only “marginally negative”.

Moody’s considered that the potential costs of Hurricane Otis can be compared to those of Hurricane Wilma, the costliest hurricane in Mexican history that struck Mexico’s Caribbean coast in 2005.

Wilma’s insured losses amounted to about US$2.7 billion, according to the Mexican Association of Insurance Institutions (AMIS).

In its report, the rating agency expected that the losses for insurers will arise from sectors led by tourism in Acapulco, being one of the main tourist destinations in the country, and is part of the 17 coastal Mexican states where almost 50% of accidents are associated with hydrometeorological risks.

However, he admitted that insurance coverage in Mexico is low, equivalent to 2% of the Mexican gross domestic product and is even lower in Guerrero, with 1% of the total premiums issued in the country.

According to data from the National Insurance and Surety Commission (CNSF), until the first quarter of the year, in the southern Mexican entity of Guerrero, only 7,128 insurance policies were registered with “Hydrometeorological phenomenon”, while in the country there were 842,310 insured against this type of problems.

Moody’s The economic losses from Hurricane Otis were expected to disproportionately affect low-income businesses and generally uninsured populations.

He also explained that the insurance sector has a reserve for catastrophes of US$ 3,000 million with which they could face this natural disaster of “high gravity”.

In addition, he predicted that the damage caused by the passage of Otis will affect the operation of bank branches for several weeks, limiting credit risks due to their portfolio diversification and solid capital position, allowing them to absorb any credit loss.

“We also do not anticipate negative credit effects for the CFE, the largest electricity supplier in the country.”the report added.

According to the most recent public information, CFE has already managed to restore 50% of the electrical service in the regions affected by Otis, after almost half a million Mexicans were left incommunicado.

For telecommunications companies such as América Móvil, Grupo Televisa and Total Play anticipated a “limited credit risk”, given its geographical coverage and diversified operations.

So far, damage to wireline and wireless telecommunications infrastructure has been partially restored, but full recovery depends on the restoration of power supply.

In this sense, he explained that the operations of America Movil They are more exposed to hurricane risk due to their subsidiaries in the Caribbean, but they represent less than 5% of cash flow, while for Grupo Televisa and América Móvil they benefit from strong liquidity, which limits the impact on their quality. credit.