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Earthquake in Mexico : economic losses could be between 1 and 10 G$

by

Mathieu Carbasse

11 September 2017 12:00

Damage caused by the earthquake in Juchitán, Oaxaca | Photo : Government of Mexico

The earthquake of magnitude of 8.1 hit the Mexico Friday, September 7 is the most powerful recorded in a century in the country. TheInstitute of geological studies of the United States (USGS) has located its depth to approximately 70 km, while the epicenter was located along the pacific coast of the States of Oaxaca and Chiapas. The tremors were felt up to 800 km away, in the city of Mexico and neighbouring Guatemala.

The human losses are heavy. As a result, 25 new victims are added to the previous balance sheet drawn up by the authorities. «We inform that the balance of people who have lost the life is past, to 91, of which 71 are in the State of Oaxaca, 16 in Chiapas, and 4 in the State of Tabasco,» said the civil Protection mexican in a statement released on Monday 11th September. The earthquake has also made more than 200 injured.

Low insurance coverage

In a report, A.M. Best estimated that the damage caused to infrastructure and homes are limited to States that are closer to the epicenter (Oaxaca and Chiapas). These states have poverty levels among the highest in the country, and, consequently, a low coverage insurance.

The governor of Oaxaca, Alejandro Murat, said that at least 12,000 homes have been damaged. According to him, a million of the inhabitants of the State were now in need of food, water, electricity and assistance to rebuild the damaged houses. In the neighboring State, Chiapas, 1.5 million people would need humanitarian assistance.

Mexico city reports minor damage to infrastructure, which should not result in large claims for the industry. In December 2016, the reserves related to the disasters earthquake, amounted to $ 999 Million$ (20 billion pesos), which represents approximately 10% of the amount adjusted.

Between 1 and$ 10 billion of losses

The system USGS-Pager, which quickly assesses the impacts of the earthquake in function of the population exposed to each intensity level of shaking, has estimated that there were at least 76 % chance that economic losses will exceed the billion dollars (G$). It is likely (34%) than the losses amounted to between 1 and 10 G$.

In addition, the USGS has also noted that there was a probability of 29 % of the economic losses in the range 10-100 G$ and a probability of loss of 13 % for losses above$ 100 billion. Finally, there is a probability of 22 % for the total economic loss is to be less than$1 billion.

Finally, it should be noted that the’economic impact final will probably be less than 1 % of mexico’s GDP.

An obligation-disaster of$ 360 Million

While it is still too early to measure the extent of the damage and losses arising from this event, A.M. Best expects an increase in claims for the industry. The net losses after reinsurance, however, should not result in a significant decrease in the results of insurers.

In addition, the mexican government had put in place in August 2017 an obligation-disaster to a maximum of$ 360 Million to its protect against losses from earthquakes and tropical cyclones. These resources will therefore be used to mitigate the impact on the infrastructure and the population in the affected areas.

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