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Hurricane season to bring additional challenges to U.S. P/C industry: Fitch

1st June 2017 - Author: Staff Writer

The U.S. property & casualty insurance industry is strongly capitalised and has the capacity to withstand what’s expected to be an active hurricane season ahead despite the continued challenges of competitive pricing, said Fitch Ratings’ in its 2017 hurricane season report.

Hurricane image from the Space StationThe agency cautioned, however, that a major catastrophic hurricane could be hard-hitting for insurers with significant impact felt on their balance sheets.

“2017 is more likely to be an active hurricane season according to meteorologists, but minus any extremely severe storms, most insurers should be able to manage losses that may unfold,” said Christopher Grimes, Director Fitch Ratings. “The real storm for p/c insurers continues to be the competitive pricing environment.”

Soft market conditions are forecast to continue to trouble the U.S. property/casualty insurance and reinsurance market, where pricing remained unchanged by last year’s Hurricane Matthew losses and the market is swamped with large volumes of under deployed capital.

An issue still blighting the industry, Fitch noted, is the question over wind versus flood damage in settling property claims as “property coverage typically only indemnifies the policyholder for losses that occur as a result of wind damage.”

The National Flood Insurance Program (NFIP) has been aiming to lower its net exposure to major catastrophes, as it looks to reduce costs and manage its already outstanding debt of $23 billion.

Fitch Rating Director Grimes highlighted the need for reinsurance when settling costly property damage related claims; “in the event that hurricane force wind damage is minimal, flood damage remains a key risk.

“While most years the premium levels for risk assumed by the NFIP exceeded claims, major flood events blow the balance.

“The ability of the NFIP to transfer risk to traditional and alternative reinsurance markets, will be a key factor in securing the viability of the program in the face of significant catastrophic flood events.”

In 2016, insurers and homeowners were fortunate to be hit with limited losses, escaping large-scale devastation despite Hurricane Matthew and Hurricane Hermine, but Fitch warns re/insurers not to rest on their laurels as coming catastrophes could see the industry tested.

“Many growing Florida property insurers have brief histories, untried by a large loss event, which creates uncertainty as to how these firms will respond to a future hurricane that generates significant industry losses,” Grimes added.

Looking ahead to mid year 2017 reinsurance renewals, the rating agency forecasts challenging pricing conditions, most notably in  commercial property although tough conditions are set to linger throughout the entire primary property market.

Pricing at the June 1 reinsurance renewal has generally been seen on a downward trend, with reports suggesting that key markets like Florida have seen deeper price cuts than a year ago.

As ever the hurricane season poses a major threat to re/insurer solvency and with forecasts suggesting an above average level of activity in the Atlantic tropics, re/insurers will be entering the 2017 season with trepidation, no matter how pricing has behaved.

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