A hurricane that hits land could present additional challenges to a P&C sector beset by inflation increases and the potential for stagflation, says Fitch in a new note.
The firm said that natural catastrophe losses, particularly severe weather-related events, represent a major source of loss volatility, but capital levels of large (re)insurers should absorb near-term large insured losses from an individual hurricane or other catastrophic event. This comes against a backdrop in which the firm said the North Atlantic Basin will experience above-average hurricane frequency this year.
However, the firm said that insurer capital within the US P&C sector was still sufficient to withstand hurricane season. It said that industry policyholders’ surplus (PHS) increased by 40% over the last three years and now exceeds $1tn.
Fitch also said that Florida homeowners’ insurance specialists reported continued performance deterioration and a decline in capitalization levels despite no hurricanes hitting the state since 2018.
It added: “Many insurers in the state have experienced severe pressure regarding underwriting performance and capitalization levels, leading to the liquidation of a number of carriers. As a result, policyholders have found it increasingly difficult to find private market homeowners’ insurance coverage.”
Fitch also said that the June/July reinsurance renewals would be challenging for Florida primary underwriters with reduced reinsurance supply. This, said the agency, would reflect recent adverse loss experience. Rate increases were also expected to shift into double figures, with many reinsurers limiting capacity in Florida to curtail volatility.
It concluded: “Fitch currently has a neutral sector outlook on the US P/C insurance industry and the global reinsurance sector. Capital strength of (re)insurers should allow them to absorb near-term large insured losses from an individual hurricane or other catastrophic event, but a confluence of large events in a short period may lead to capital reductions and ratings pressures.”
