Posted 01/11/2023 – Quick takes
On 25th October, Acapulco in the Southwest of Mexico was devastated by Otis, a Category 5 hurricane. Wind speeds of 165 miles per hour (265km/h) were recorded and almost 100 people are either reported to be dead or missing at this stage. Acapulco’s economy is heavily linked to tourism with a vast number of hotels in the area having suffered losses and the federal civil defense agency estimates that 220,000 homes are damaged.
AM Best has published its forecast of insured losses in the range of $1.8bn-$6.5bn, however Gallagher Re expects economic losses to exceed $10bn. The Mexican government has a $125m catastrophe bond with the world bank and analysts at Plenum Investment predict that around 50% of the bond will be triggered.
Initial views from Lloyd’s underwriters suggest that the majority of risks in the area are insured with the local insurance market, with Acapulco lacking some of the multinational hotel brands.
Otis caused a significant amount of destruction in Mexico, however there is quite a significant protection gap between insured losses and economic losses. Furthermore, reaction from underwriters suggests that our syndicates have only a small footprint in this area and therefore losses are likely to be at a manageable level and likely to be within reinsurance deductibles. We will continue to monitor the situation in the coming weeks.