Mexico - Insured losses from Hurricane Otis could reach up to $15 billion
Data and analytics company CoreLogic Inc. said the insured losses from Hurricane Otis, which struck Mexico’s resort town of Acapulco as a Category 5 storm on Oct. 25, is expected to reach between $10 billion and $15 billion, Reinsurance News reported.
The initial estimate includes losses from wind damage alone and does not cover losses from coastal and inland flooding. It also comprises of damage to buildings and contents and does not cover business interruption losses or costs related to additional living expenses.
At 1:25 am local time, Hurricane Otis made a direct landfall on Acapulco, an oceanside resort city and the largest city in the Mexican state of Guerrero in terms of population and economics, with maximum sustained winds of 165 mph.
Hurricane Otis is the strongest tropical cyclone on record to affect the state and surrounding area. The storm rapidly intensified from a Cat 1 system on Tuesday morning to a major hurricane prior to landfall, so in less than 24 hours, Otis’ maximum sustained winds increased by 110 mph.
Initial analysis by CoreLogic estimates that insurable (ground up) losses from wind damage alone, so excluding losses from coastal and inland flooding, in Mexico are between $10 billion and $15 billion. CoreLogic’s estimate also only includes damage to buildings and contents, so does not include business interruption, or the costs associated with additional living expenses.
Further, only residential, commercial, industrial, and agricultural structures are included, with Government property, infrastructure, crops, and livestock not included in the range.
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Hurricane Otis likely to trigger Mexico catastrophe bond payout, Artemis.bm / October 25, 2023
Acapulco reels from catastrophic damage in the wake of Hurricane Otis, JEFF MASTERS and BOB HENSON / Yale Climate Connections, OCTOBER 27, 2023
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While the insurable modelled loss estimate is up to $15 billion, CoreLogic notes that the actual insured loss is likely to be lower, given that in markets like Mexico, coverage is most likely limited to hotels and resorts.
The region is home to a high concentration of tourism-related infrastructure, including hotels and beach-side resorts, ports for luxury cruise lines, and condominiums that serve as second homes.
“Property insurance penetration is much lower across the other sectors in this region,” says CoreLogic.
Prior to Otis, Hurricane Pauline in 1997 was the most recent significant event to hit Acapulco, although this brought only Cat 1 force winds to the area, and heavy rainfall.
CoreLogic notes that other major hurricanes have made landfall along the Pacific Coast of Mexico, but few directly hit a city centre.
“Hurricane Otis stunned meteorologists and emergency management offices alike with how it defied forecasting model expectations. Global climate and hurricane model runs from 24 hours before landfall indicated that Otis would not reach hurricane strength. As the system continued to develop and intensify, the models adjusted, but still noted gradual weakening before landfall,” explains CoreLogic.
The rapid intensification of Otis as it approached land was enabled by warm sea surface temperatures near 30°C and low wind shear.
As noted by CoreLogic, rapid intensification has not been uncommon during this hurricane season, and the risk modeller suggests that the record high sea surface temperatures this year may be a sign that prime hurricane conditions will extend later into the season, which runs until the end of November.
