AM Best has forecast that Caribbean property and casualty (P&C) insurers could see a reversal of their recent positive growth trends due to the socioeconomic impacts of the COVID-19 pandemic, combined with rising reinsurance rates.
The rating agency noted that the coronavirus crisis has been “a catastrophe for the entire Caribbean region,” and will likely strain insurers’ profitability and delay the implementation of growth and strategic initiatives.
Caribbean governments have started to reopen their borders to commerce, but there is still much uncertainty about the length and depth of the pandemic, and so recovery timelines are not possible.
Insurer profits have also been constrained by the COVID-19-fueled downturn in the equity markets, the abrupt slowdown in the global economy and the continuation of low prevailing interest rates.
And while the equity markets have now rebounded to some extent, these events have exacerbated uncertainty about revenue forecasts and investment risk for Caribbean insurers with US or international exposure.
“The COVID-19 outbreak will reverse the slow but steady economic growth that took place from 2011 to 2019 in many of the tourism-dependent economies in the Caribbean,” said AM Best.
“Many of these tourism-source countries are now facing economic recessions because of the pandemic, with severe contractions in economic activity and high unemployment rates.”
Natural catastrophes remain the primary risk to P&C companies operating in the Caribbean, and reinsurance is the main mitigation tool used against these exposures.
Following the 2016-2017 hurricanes, overall net income rebounded in 2018, and in 2019, the consolidated net income of Caribbean P&C insurers improved four-fold to $36.4 million over 2018, despite the negative impact of Hurricane Dorian on the results of Bahamas-domiciled insurers.