Although it will be some time before the overall losses and impacts from Hurricane Beryl are understood, John McGlynn, a senior financial analyst at AM Best, expects losses to the reinsurance industry to be within risk appetite and contained in their earnings.
At the same time, McGlynn warns that cost pressures in higher frequency excess reinsurance layers have driven some carriers to increase retentions modestly, which means that the earnings impact could be more severe for Beryl than for storms in prior years.
“The largest impact to results in 2024 may end up being the cost associated with purchasing third- or fourth-event reinsurance reinstatement cover. Companies do not always purchase this cover, but a severe storm so early in the season may require protection from additional CAT events at what is likely to be premium prices,” said McGlynn.
In recent years, Caribbean domestic primary insurers have been faced with challenging reinsurance conditions as sellers re-evaluated the capacity it extends to the region.
According to AM Best, reinsurers generally view their presence in the Caribbean as opportunistic rather than mandatory.
“In 2023, a combination of a higher frequency of non-modeled events in the U.S. and Europe, high interest rates providing alternative investment opportunities and, for European reinsurance carriers, a strong dollar, has driven reinsurance carriers to reduce the capacity they extend to the Caribbean. Changes in CAT modeling in some cases has driven higher exposures than in years past, which only intensified the capacity constraint,” explains McGlynn.
As a result, some primary carriers were forced to drop customers due to reinsurance capacity constraints.
While renewals were much more orderly and capacity constraints were less severe in 2024, AM Best notes that prices remained hard.
“Many local carriers were counting on profit commissions to support earnings in 2024-2025 and help offset higher CAT XOL costs, which losses from Beryl may impact,” McGlynn added.
Insurable risks across the Caribbean have increased dramatically over the past decade due to additional property development, greater car ownership and also inflation. However, the total values insured have not grown proportionally with the increase in exposure in many jurisdictions, indicating that many property owners are underinsured or uninsured, says McGlynn.
Additionally, severe losses from storm activity may impact the physical construction of new tourism assets in the affected territories and constrain the insurance cover required to pursue additional investment in infrastructure necessary to support additional tourism.
“Because of these factors and others, Caribbean insurers’ results over the near term could be pressured by Beryl. AM Best will continue to monitor the situation and have ongoing discussions with insurers on the impact,” says McGlynn.
Hurricane Beryl intensified from a Category 1 to a Category 4 storm in under 10 hours, according to meteorologists, which is reportedly the fastest intensification ever recorded prior to September. The storm is also the first Category 4 to ever form in the Atlantic in the month of June, and was the earliest hurricane to develop into a Category 5.
