The devastating impact of hurricane Irma is expected to be a real test of Florida concentrated insurers’ catastrophe reinsurance programs, although it’s still too early to understand the full extent of the loss to the risk transfer industry, according to A.M. Best.
As national U.S. carriers began pulling back from the state of Florida in response to a series of storms in the early 2000s, new entrants appeared in the marketplace in an attempt to take advantage of the demand.
Over the last decade or so, A.M. Best underlines the significant growth in direct written premiums and market share for companies incorporated post-2006, companies that until recently, benefited from a benign catastrophe experience in the state, combined with the softening reinsurance market.
It was always going to be a matter of when and not if the next major storm would hit Florida, and while hurricanes Hermine and Matthew reminded the re/insurance sector of the potential for widespread damage and losses, hurricane Irma is expected to test the resolve of Florida focused players, warns A.M. Best.
“Many of these carriers have not been subject to an intense storm such as Irma, and their reinsurance programs have not yet been truly tested. Irma will try the ability of Florida’s newer local/regional writers to mitigate catastrophe risks through appropriate reinsurance channels.
“It is still too early to tell how much of an impact the storm will have but these companies have narrower profiles and are more likely to experience larger swings in operating performance owing to severe weather events than national carriers,” explains A.M. Best.
During the softening reinsurance cycle, insurers have been able to take advantage of the availability of efficient reinsurance capital, from both traditional and increasingly alternative sources, to secure comprehensive catastrophe reinsurance programs.
“Hurricane Irma will test the reliability of these reinsurance programs,” says A.M. Best.
Overall, the ratings agency expects the event to only have a limited impact on the reinsurance sector’s capital, but warns that it anticipates specialist property catastrophe reinsurers, or those that are more U.S.-centric “and have maintained their risk appetites for Florida and Caribbean property catastrophe risks,” to experience a greater impact than firms more geographically diversified.
That being said, and as highlighted by A.M. Best, a large number of reinsurance companies that it rates have pulled back from the region in recent times as rates have continued to fall, or have utilised retrocessional capacity from the capital markets to limit exposures.
“A.M. Best expects Irma to be more of an earnings event for A.M. Best-rated reinsurers, given that balance sheets are extremely strong and have been stress-tested sufficiently to absorb extreme losses,” says the ratings agency.
As noted earlier, it will take some time before the overall economic impact and hit to the insurance and reinsurance industry from hurricane Irma is fully realised, with the latest insured loss estimate from AIR Worldwide being between $32 billion and $50 billion for the U.S. and Caribbean, combined.
