Morocco earthquake set to trigger XoL payouts on EV CAT nat cat pool

Excess-of-loss reinsurance protection for Morocco’s EV CAT natural catastrophe pool is set to be triggered by the magnitude 6.8 earthquake which hit the country late on Friday, The Insurer understands.

The pool, which came into force in January 2020 and was established by the Moroccan state to improve resilience in the aftermath of a catastrophic event, transfers risks from the government to the private reinsurance market on an excess-of-loss basis.

Premiums are collected by local insurers via a tariff on all insurance policies exposed, with local carriers retaining a small portion of the exposure on a proportional basis.

The tariff is ceded to the EV CAT natural catastrophe pool, which is managed by domestic (re)insurers La Cat and Société Centrale de Réassurance.

The pool provides limit of $275mn in excess of $25mn. Gallagher Re is the lead broker on the placement alongside Guy Carpenter.

In the event of the Moroccan government declaring a natural catastrophe, the reinsurance protection is triggered if claims breach the excess-of-loss protection.

Premiums collected by the scheme are held to provide a further buffer should a catastrophe exceed the excess-of-loss limit.

Morocco also benefits from a solidarity fund for catastrophic events (FSEC), a public funding mechanism that aims to provide coverage to the uninsured and most vulnerable households by charging a levy on premiums.

The fund launched in 2019 with support from the World Bank’s $275mn disaster risk management development policy loan.

Rescuers are continuing to attempt to reach survivors today, with more than 2,000 people already confirmed dead.

The earthquake shook Morocco’s High Atlas mountain range shortly after 11.00 pm local time on Friday at the “relatively shallow depth” of 18.5 km (11.4 miles), according to the United States Geological Survey, with the epicentre located about 72 km southwest of Marrakech.

The quake is the strongest to impact the region for more than a century, but only a small portion of the damage is expected to be insured.

Plenum Investments said there is currently no coverage in place via cat bonds for earthquakes in Morocco, but added that they would be “an effective instrument in the event of natural disasters to quickly finance reconstruction and aid”.

Speaking at a press briefing at the annual industry Rendez-Vous in Monte Carlo, Fitch Ratings said it was unlikely that the earthquake would be a major event for the (re)insurance industry.

Robert Mazzuoli, director of Fitch Ratings’ EMEA insurance group, noted that it remained “very early days” in terms of providing an accurate loss picture.