The financial impact from the Morocco quake is expected to be “manageable” and is likely to trigger a maximum payout of $US270 million ($342 million) from a parametric cover that has been in place since 2020, AM Best says in a report. 

In January 2020 Morocco enhanced its disaster risk management through the National Catastrophic Event Coverage Scheme, which established a dual mechanism for protection against natural and man-made disasters. The perils covered include earthquakes, floods, tsunamis, act of terrorism and riots. 

The scheme has a Solidarity Fund for Catastrophic Events that is covered by a parametric insurance program arranged by Gallagher Re, AM Best says. The parametric program covers earthquake events based on the Modified Mercalli Intensity (MMI) index. 

Cover is triggered if the MMI scale is equal to or greater than 5.0 in any commune, AM Best says. 

“Given the magnitude of the event, and the vast region affected, the United States Geological Survey has indicated that a large number of communes in several provinces will trigger a parametric loss.” 

AM Best says Moroccan local insurers have a limited net exposure as the catastrophic risk is ceded via quota-share and stop-loss treaties. 

The rating agency says the payout of Morocco’s national parametric scheme is expected to follow payouts on schemes in 2022 and 2023 in Fiji, Vanuatu, Kenya, Colombia, Zimbabwe, Guatemala and India. 

“While AM Best notes that these payouts demonstrate the value of parametric insurance in providing immediate funding in the wake of natural disasters, the effective use of parametric insurance can still be challenged by basis risk, inadequate modelling of perils, or insufficient capacity to provide the cover at a price that governments can bear,” the rating agency says.