Rating agency A.M. Best has said that major hurricane Maria puts Caribbean and Puerto Rico insurance firms at risk and that the storm will test their financial strength.
Hurricane Maria is approaching Puerto Rico with category 5 winds of 155 mph and higher gusts. The hurricane has left another trail of devastation as it passed through the Caribbean, raising the prospects of further losses for regional insurers and their reinsurance capacity providers.
Being the second major hurricane to pass through the Caribbean in quick succession not only heightens the risk to their financial strength, but could also complicate the claims process for re/insurers.
A.M. Best explained; “The effects if this Category 5 hurricane could be devastating to insurers and reinsurers, as the track that Hurricane Maria takes could hit areas with higher insured values, and that areas that already have sustained damages due to Hurricane Irma may suffer further damage, which would lead to concerns about which event was responsible for which damage.”
The rating agency also noted that a second major storm could mean issues in reinstating reinsurance protection for a future third, if the layer had already been eroded twice.
“Reinsurance limits after Hurricane Irma need to be reinstated, and although most companies have automatic reinstatement coverage to protect against a second event, not all companies are prepared to cover a third,” A.M. Best said.
There are also issues related to profit commissions to consider, with A.M. Best stating that; “Many catastrophe reinsurance contracts also feature profit-sharing provisions, whereby a percentage of underwriting profit is returned back to the ceding company. Several companies with exposures to Hurricane Irma have already lost millions of dollars in profit commissions due to last year’s Hurricane Matthew, and likely will lose millions more as a result of hurricanes this year.”
Following a year with multiple major hurricanes, A.M. Best also suggests that reinsurance rates for carriers in the region could rise going forwards.
Hurricane Maria does not seem to be a typical modelled event, the rating agency says, meaning that while most companies are well-protected there is a chance of outsized losses for exposed insurers and reinsurers.