Estimated insured losses from Hurricane Erick, which struck Mexico’s Pacific coast last week, are expected to fall well bellow the US$1.97 billion insured losses from 2023’s Hurricane Otis, according to global ratings agency AM Best.In a new report, AM Best notes that losses from Erick are expected to be contained, with parametric insurance contracts unlikely to be triggered.However, the agency warns that the current reinsurance market cycle could be further hardened by both Hurricane Erick and the ongoing trend of tropical storms rapidly intensifying into severe hurricanes due to rising ocean temperatures.As we had , Erick rapidly intensified into a major hurricane as it approached landfall on Mexico’s Pacific coast, which for a time put the World Bank facilitated $175 million IBRD CAR Mexico 2024 (Pacific) parametric catastrophe bond on-watch.

, having risen as it neared the coast, which reduced the risk to the cat bond and left us believing it was unlikely to be affected by the storm.that catastrophe bond and ILS investment manager Twelve Securis had confirmed that it does is not anticipate any impact to the World Bank catastrophe bond or any of the firm’s private ILS positions due to losses caused by Erick.“In AM Best’s view, estimated insurance industry losses for Hurricane Erick will fall well below the USD 1.97 billion in insured losses from Hurricane Otis in 2023.

However, storm damage from Hurricane Erick continues to be assessed as it was the strongest hurricane ever recorded along Mexico’s Pacific coast this early in hurricane season,” AM Best explained.The agency noted that for most insurers with exposure in the affected Oaxaca and Guerrero states, the primary impact will likely stem from business interruption losses due to prolonged power outages, flooding, and food shortages.“Lesser material losses are expected for commercial and residential infrastructure, as well as high-value hotels and resorts.

The hurricane had reached Category 4 status before tapering off to a Category 3 storm at landfall,” the agency added.“Mexico’s insurance industry is strongly capitalized and has sound levels of catastrophic provisions aimed at mitigating the effect,” said Salvador Smith associate director, AM Best.Adding: “We’ll continue to monitor the financial impact of Hurricane Erick on rated companies, as well as credit risk with counterparts and liquidity among rated insurers.”.

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