BMS has warned that the total economic impact of Hurricane Melissa could reach 30–250% of Jamaica’s GDP, potentially triggering a deep recession, widespread unemployment, a sharp decline in tourism, and severe strain on local banks and insurers, placing heavy pressure on public borrowing to fund recovery efforts.
After making landfall near Crawford, Jamaica, BMS said Hurricane Melissa is expected to impact the entire island. The storm ranks among the strongest on record to strike Jamaica and is the first Category 5 system to make landfall since Dorian on September 1, 2019.
This places Melissa among an elite group of Category 5 Atlantic landfalls in terms of both pressure and wind speed; only two other hurricanes in Atlantic basin history have recorded lower central pressures.
While the impacts of the event are expected to be devastating, BMS suggested that the overall insurance loss will be limited due to a lower take-up rate across the Island.
“It is understood that the country’s commercial take-up rate is about 30%. The auto take-up rate is about 50%. Unfortunately, the residential take-up rate in areas like Kingston is only 10%, highlighting the overall protection gap that exists in some nations,” BMS stated.
The firm continued, “One factor that complicates overall insurance loss estimates is that hurricanes typically make landfall from east to west along the Jamaican coastline, as was the case with Gilbert (1988), rather than from south to north.
“Only one major hurricane has made landfall from the south, which was the unnamed 1912 hurricane. This means the overall development of stochastic track catalogues, with strong category 5 hurricanes making landfall along Jamaica’s southern coastline, is more limited in its understanding of potential loss, which is why, at this time, it is best to wait and see what event selection the catastrophe model vendors provide for reliable loss guidance.”
However, BMS noted that the extreme nature of Melissa makes it a tail event, a rare, high-impact occurrence that typically results in industry losses exceeding $5 billion.
With Jamaica’s GDP estimated at around $20 billion, BMS warned that the total economic impact of Hurricane Melissa could range from 30% to 250% of GDP.
As mentioned, the fallout could include a deep recession, widespread unemployment, a sharp downturn in tourism, and severe strain on local banks and insurers, placing heavy pressure on public borrowing to fund recovery efforts.
“Maybe another way to put this type of loss into perspective is that 30% of U.S. GDP would be an 8.85 trillion dollar loss, so, as one can imagine, the economic impacts will be significant,” BMS added.
In related news, our sister publication Artemis reported that the storm’s eye has moved well within the parametric trigger zones of Jamaica’s $150 million IBRD CAR Jamaica 2024 catastrophe bond, indicating a full 100% payout of principal is likely.
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