The combined losses caused by hurricane Harvey and hurricane Irma could be sufficient to strain some reinsurers capital and perhaps even pressure their ratings, according to Fitch Ratings.
The rating agency believes that given the complexity of Harvey losses and the breadth of the impact of Irma, it cannot be ruled out that some reinsurance companies may face a larger than expected share of the loss, potentially enough to become a capital event for them.
Largely it is expected that the hurricanes will be no more than an earnings event for the majority of the reinsurance market, as well as for the larger primary players with surplus on hand.
“Fitch believes most rated reinsurers will sufficiently absorb their respective losses and maintain ratings at existing levels,” the agency explained.
However the agency also warns that it does not yet, “Dismiss the chance that select (re)insurers with disproportionate combined exposures could ultimately report losses at levels that could strain capital and pressure their ratings.”
“Re-insurers will bear a large portion of losses from Irma, but the reinsurance market is well equipped to handle substantial hurricane losses in part due to a lack of major hurricane landfalls in the 11 years before Irma,” commented Chris Grimes, Director at Fitch.
Harvey is a particularly complex loss though, with the more complex areas of loss, such as commercial business interruption, energy and marine, deemed likely to contribute significantly to the overall market exposure.
Some companies will be deemed more likely to take a larger share of such losses, such as the excess & surplus lines players, those exposed to any binder books (of which there is one large such binder rumoured to be reinsured into Lloyd’s), and those with significant commercial property exposure that includes flooding.
The reinsurers who have participated in the programs of such non-standard underwriters may find themselves the most exposed to Harvey, while those participating in Florida domestic insurers programs will take the bulk of the Irma loss it is assumed.
Another factor Fitch highlights is that for many of the Floridian primary insurers hurricane Irma is their first experience of a major landfalling storm, which could exacerbate losses for some. However the rating agency does not expect any to fully exhaust their catastrophe reinsurance program limits from Irma alone.
