Reinsurance partnerships are the “cornerstone” that provides the capacity for insurers to profitably write business in the Caribbean, according to A.M. Best, and have allowed them to weather two years of heavy catastrophe losses with little to no major operational impact.
Analysts noted that these longstanding partnerships have proven to be extremely resourceful in the context of prudent catastrophe risk management, given that exposure to natural catastrophes is the greatest peril faced by carriers operating in the Caribbean.
Most insurers in the region continue to maintain conservative, yet robust, property reinsurance treaties, employing a combination of property and excess of loss treaties, and in many cases purchasing reinstatement premium as cover for second and third events.
Companies also depend heavily on the services of their reinsurance brokers, A.M. Best observed, who work with them to quantify exposures, perform stress tests, and develop appropriate reinsurance programs.
In 2017, the Caribbean market was hit particularly hard by Hurricanes Irma and Maria, which impacted Barbuda, St. Maarten/Martin, Anguilla, and the Virgin Islands, as well as Puerto Rico and Dominica.
The economies in these regions have begun to gradually recover following the hurricanes, but financial relief has been fairly minimal due to a significant protection gap of more than 80%.
While facilities such as the Caribbean Catastrophe Risk Insurance Facility SPC (CCRIF) have provided some support the governments of member countries, A.M. Best believes that a combination of macro initiatives and micro-insurance may have greater potential in narrowing the region’s protection gap.
The consolidated net income of P&C insurers rebounded with an increase of more than 800% in 2018 compared to 2017, and insurers in territories impacted by the hurricanes were able to increase rates in line with reinsurance pricing.
However, for the most part analysts are anticipating a continuation of soft market conditions in the Caribbean with limited price firming.
Overall, A.M. Best considers Caribbean insurers to be resilient, with sound operating fundamentals and conservative capital management strategies supported by robust reinsurance programs.
