Mexican insurers are unlikely to see significant impacts from the Sept. 7 Chiapas earthquake, Fitch Ratings Inc. said Thursday, due to low insurance penetration in the affected areas, the strength of catastrophe reserves and use of reinsurance.

The most destructive Mexican earthquake in terms of insured losses was in 1985 with $440 million of losses, New York-based Fitch said in a commentary. 

“Although the event on Sept. 7 was of greater magnitude at 8.2 degrees,” Fitch said, “based on preliminary information and on the conservative approach to catastrophe reserves and reinsurance, it should not have a significant impact on the results of the insurance sector.”

Losses are primarily concentrated in Chiapas, Oaxaca and Tabasco, Mexican states with relatively low levels of insurance protection. Only 2.9% of total gross written premiums and 1.7% of net written premiums are for earthquake insurance, according to Fitch. 

Losses are expected primarily for infrastructure, commercial buildings and homes, and to a lesser extent in automobiles, but without significant effects on the financial results of the sector. 

Fitch said that the Mexican insurance sector is well prepared to deal with severity losses from earthquakes and hydro-meteorological events, given its catastrophe reinsurance protection.

For property/casualty products excluding auto insurance, the industry cedes 67.4% of gross written premiums, and the average maximum loss under the priority of the catastrophe reinsurance programs represents only 2.3% of total equity, Fitch said. 

Insurers with exposure to catastrophe risk hold ample reserves and maintain capitalization levels to reflect the risks. Catastrophe reserves total about $1.9 billion representing 36% of the sector's total equity. 

Mexico has a $349 million disaster relief fund and a catastrophe parametric bond protecting the country up to $360 million, of which $150 million is available given the magnitude of the earthquake. The country also has $100 million and $110 million available for relief from hurricanes on its Atlantic and Pacific coasts, respectively, Fitch said.