Moody’s RMS estimates Hurricane Otis insured losses at $2.5bn-$4.5bn

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Moody’s RMS has estimated that private market insured losses from Hurricane Otis will be between $2.5 billion and $4.5 billion.

According to the firm, this estimate represents insured losses associated primarily with wind damage in the Category 5 hurricane that made landfall in Acapulco, Mexico. The figures reflect property damage and business interruption losses to residential, commercial, industrial, and automobile lines of business, and also consider the potential for post-event loss amplification, inflationary trends, and non-modelled sources of loss, including infrastructure damage.

However, Moody’s RMS noted that the estimate does not include losses for any sovereign protection programs (Mexico’s FONDEN) due to this event, which includes both traditional (re)insurance and insurance-linked securities.

Jeff Waters, Staff Product Manager, North Atlantic Hurricane Models, Moody’s RMS, commented, “Major Hurricane Otis was an unprecedented event across multiple fronts. As a Category 5 storm with 165 mph sustained winds, it was the strongest landfalling hurricane on record in both the Acapulco region and Mexico as a whole, aided by a period of record rapid intensification in the 24 hours prior to landfall. Observational windspeed data – while limited – suggests a broad swath of exposure and population was affected by major hurricane-level wind gusts.”

Waters continued, “Prior to Otis, this region of Mexico had never experienced a Category 5 hurricane landfall, underscoring the importance of using catastrophe models to fill in gaps associated with the historical record, understand the events that haven’t happened yet but could, and the potential impacts on present-day exposure at-risk.”

Julie Serakos, Senior Vice President, Moody’s RMS, added, “In determining the overall damage estimates from this event, underinsurance is a common theme. Much of the damaged exposure is unlikely to be insured to the full value of the structure or insured at lower limits, especially in inland regions.

“We expect most of the insured losses to be driven by damage to coastal commercial and commercial residential exposure. Nevertheless, we expect Otis to be one of the costliest hurricanes in Mexico’s history from both an economic and insured loss perspective.”

Rajkiran Vojjala, Vice President, Model Development, Moody’s RMS, said, “The strongest winds from the event caused damage to a large stretch of modern, high-rise exposure along Acapulco Bay, including apartment complexes, hotels, and resorts.

“Aerial imagery and reconnaissance to date show that Otis caused some of the most incredible wind damage to modern-day high-rise structures we have ever seen, as observed winds well-exceeded prevalent design wind speeds for the region.

“While several tall buildings survived record gusts, thanks to well-designed structural systems in place for earthquake safety, their lightweight cladding and exterior that improves seismic performance, bore the brunt of high winds, and was destroyed.

“Recovery and reconstruction efforts could take years. During this time, we expect a high number of total constructive losses given the damage severity and complexity of repairs.”

Moody’s observed that wind losses from Otis are based on analysis of ensemble footprints and stochastic events in Moody’s RMS Version 23 North Atlantic Hurricane Models that “best reflect the characteristics and uncertainties of the event”, and using an internal Moody’s RMS industry exposure database for Mexico.

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