Hurricanes Harvey, Irma and Maria (HIM) wreaked a path of destruction and devastation across the Caribbean and the US for residents and businesses alike and the fallout was also felt by (re)insurers covering those regions and third quarter results showed significant losses of more than $100m reported for personal and commercial line carriers.
However, for the most part, many property/casualty (re)insurers have been resilient so far and have avoided losses becoming a capital event according to ratings agency A.M. Best. But it remains anyone’s guess as to the longer term effects on the industry and whether these storms are a sign of things to come.
A.M. Best measured the impact of the hurricanes based on reports published by publicly held companies and lists the property and casualty (re)insurers with reported net losses over $100m from HIM. Below are the top 10.
Lloyd's of London
3,600 (Pre-tax, Includes Mexican earthquakes)
3,000 (Includes Mexican earthquakes)
American International Group
1,050 (Includes Hannover Re, includes Mexican earthquakes)
What happens post storms?
The Best Special Report suggests that among the alternatives for (re)insurers are: a likelihood to shrink their capacity or increase pricing in the Caribbean and Florida or expand their use of reinsurance or retrocessional protection, leaning heavily on capital markets. However, there may be limited capacity to raise rates as the marketplace is fiercely competitive.
Primary insurers, traditional reinsurance, collateralised reinsurance, and insurance-linked securities (ILS) will all share in the hurricane-related losses. A.M Best says that although the catastrophes “had a profound impact on earnings, they are unlikely to constitute a capital event for the majority of reinsurers, based on current reported losses.”
Those rated by Best were well capitalised and losses fell within their risk tolerances with the caveat there may be adverse developments. In addition, there were no downgrades by the ratings agency as a result of the catastrophes as yet.
The property/casualty reinsurance industry is well capitalised according to A.M. Best, but the combined effect of HIM is likely to reshape the industry. Primary insurers suffered large losses, but this blow was softened because many were prepared for these events with appropriate reinsurance programmes in place. Those that were affected will have reported significant underwriting losses for the quarter.
Investors’ appetites for insurance risk remain unabated over the short term as a result of capital owing back into the insurance market.
Marketing participants desiring large rate increases as a result of the catastrophe losses, will be disappointed as third-party capital may act as a moderating in influence on rate hikes. The largest increases may be seen in property rates with loss-affected areas seeing the greatest increases.
Still only time will tell the full repercussions of the 2017 hurricane trio on the reinsurance market.