Best’s Commentary: Minimal Insured Losses Expected in Peru and Ecuador from Magnitude 8.0 Earthquake
MEXICO CITY–(BUSINESS WIRE)–AM Best does not foresee a major impact to the domestic insurance
markets in Peru or Ecuador following a significant earthquake centered
in Peru that also affected several provinces in neighboring Ecuador.
On May 26, 2019, an 8.0 magnitude earthquake struck in the interior
Loreto region of Peru, an event that could be felt in Ecuador, Colombia
and Brazil. To date, the areas known to be affected by the earthquake
are concentrated in Loreto and in several provinces in Ecuador. In Peru,
there is reported damage to housing infrastructure and schools, as well
as disruptions in highway travel due to minor landslides and asphalt
shifting.
According to the U.S. Geological Survey (USGS), initial economic losses
are estimated at less than 1% of Peru’s gross domestic product. The
earthquake had a depth of approximately 68 miles, according to the USGS.
In Ecuador, damages are described as minor, without any collapse of
structures.
In a Best’s Commentary, titled, “Minimal Insured Loss Expected in
Peru and Ecuador from M8.0 Earthquake,” AM Best states it does not
anticipate significant insured losses in Peru or Ecuador as a result,
given the limited impact reported so far and the low insurance
penetration in the regions affected by the earthquake.
Peru is the seventh largest insurance market in Latin America, with a
market penetration rate of approximately 1.8% in 2018. Additionally,
strong regulatory requirements mandate the use of catastrophic reserves
and that foreign reinsurers be highly rated, further protecting the
capital of companies.
During 2018, five insurers wrote a total of USD 271 million in
earthquake premium in Peru, with one insurers underwriting 52% of the
market. These insurers retained approximately 32% of the earthquake
premium. Additionally, Peru’s government has a catastrophic bond (IBRD
CAR 120) as a part of the Pacific Alliance, which could be triggered on
its single $200 million tranche that protects Peru against earthquakes,
specifically at 30% of the principal, or approximately USD 60 million.
Ecuador is the eighth largest insurance market in Latin America with a
market penetration rate of approximately 1.6% in 2018. During 2018,
catastrophe premiums in Ecuador totaled USD 55 million, with a retained
premium of approximately 58%; this premium was underwritten by five
insurers, with one holding a 52% market share.
AM Best will continue to monitor the impact of this event on the balance
sheet of rated insurers in these countries.
To access a copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=286047.
AM Best is a global rating agency and information provider with a
unique focus on the insurance industry. Visit www.ambest.com
for more information.
Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its
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