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Hurricane Fiona insured losses depend on recovery and resilience, says AM Best

22nd September 2022 - Author: Kane Wells

Hurricane Fiona has damaged infrastructure and interrupted business operations in Puerto Rico and the Dominican Republic, though a report from AM Best suggests insured losses are expected to be manageable as companies have taken significant action in managing their risk profiles since Maria in 2017.

am-best-logoMaking landfall in Puerto Rico on September 18 as a Category 1 storm, Fiona’s 85mph winds were not as strong as previous storms but still caused considerable property damage. In addition, its rainfall amounts of one to two feet have caused catastrophic flooding, says AM Best.

The extent of damage that Fiona causes may depend on the duration of business interruption and the cause of loss suggests AM Best, noting that it may take longer for claims adjusters to visit Puerto Rico to assess the damages, therefore it expects these losses to develop over a longer timeframe.

AM Best wrote, “Hurricane Maria exposed the vulnerabilities of the island’s infrastructure, particularly its power grid. Although efforts have been underway to improve the system, Fiona clearly indicates that more is yet to be done.

“Insurance companies on the island have taken significant action in managing their risk profiles. Efforts include tightened underwriting guidelines, sharpened risk management techniques, improved product sophistication/granularity, and significant rate increases.”

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AM Best expects that for most primary insurers, the biggest impacts will be damage from wind and fallen trees on roofs and cars, as well as business interruption losses due to extended power outages and deterioration of hotel infrastructure in tourist areas.

Insurance carriers significantly tightened terms and conditions and lowered sub-limits after Maria, says AM Best, as a result, it anticipates that business interruption losses associated with Hurricane Fiona will be within risk tolerances.

Additionally, AM Best expects property losses to be manageable due to the relatively moderate wind speed combined with the low take-up rate on homeowners’ policies.

It adds that a large portion of the loss is anticipated to be from floods, which is not covered by the standard homeowners’ policy.

AM Best concluded, “We believe it is too early to predict the rating impacts from Hurricane Fiona, but at this point, we expect the event to be more of an earnings event for the insurance industry as most losses would be caused by flood, which comes under the NFIP program administered by FEMA.

“While the impact on the insurance industry may be manageable, we will continue to monitor developments in companies that are concentrated in Puerto Rico, as well as the effectiveness of their reinsurance programs.”

Fiona has since strengthened into a Category 4 storm, with a hurricane warning now in effect for Bermuda.

Bermuda is likely to experience hurricane force winds as hurricane Fiona passes less than a hundred miles to the west of the island.

The projected path of Fiona has it reaching the Maritime Provinces of Canada in the coming days, with hurricane force wind gusts also likely here, albeit from a rapidly turning extra-tropical Fiona at that time.

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