A.M. Best Comments on Hurricane Irma’s Potential Impact on U.S. Property/Casualty, Global Reinsurance Industries

Business Wire

OLDWICK, N.J.--(BUSINESS WIRE)-- With Hurricane Irma having already impacted the Caribbean and threatening the southeast coast of the United States, A.M. Best has begun to assess the potential financial impact this event may have on the U.S. property/casualty and the global reinsurance industries.

In a new Best’s Briefing, “A.M. Best Comments on Hurricane Irma’s Potential Impact on U.S. Property/Casualty & Global Reinsurance Industry,” A.M. Best notes that the hurricane has the potential to cause severe catastrophic losses in Florida and surrounding states. A.M. Best’s credit rating assessment includes a risk-adjusted view of overall capitalization, which takes into account a reasonably severe event, as well as a detailed analysis of an insurer’s catastrophe reinsurance programs. If the track of the storm progresses as anticipated, Hurricane Irma will fall under the category of an extraordinary event, making it one of the worst hurricanes to make landfall in the United States. A.M. Best will evaluate its rated entities in the region in the context of each company’s loss expectations, as an event of this size could exceed modeled assumptions. Any material deviations could lead to negative rating action in the form of under-reviews, outlook revisions or rating downgrades.

Within a reasonable timeframe, A.M. Best expects all of its rated entities to provide preliminary estimates and/or ranges of their potential losses, which should take into account the involvement of any government-specific “wind” and “beach” residual market mechanisms when applicable. Principal among these are the National Flood Insurance Program (NFIP), which is responsible for almost all residential flood coverage in the country, and the Florida Hurricane Catastrophe Fund (FHCF), which provides reinsurance coverage for Florida residential property writers. The NFIP has been stressed by severe flooding events in recent years (including Superstorm Sandy in 2012, and as expected, Hurricane Harvey in 2017). Conversely, the FHCF has not had to contend with a major event in recent years, and so its liquidity has improved.

Although many of the national commercial lines writers have meaningfully reduced their exposures to wind events in the Southeast over the past decade, the commercial insurance segment likely will experience significant claims for direct property losses and business interruption if Hurricane Irma’s impact is in line with current forecasts. A.M. Best anticipates that third-quarter and annual earnings for most public commercial segment companies will be adversely affected by the one-two punch of Hurricanes Harvey and Irma. For rated companies with significant concentrations in Florida and the nearby states that could be impacted by this storm, the effect may be more substantial. The Florida personal lines market consists of regional/local and large national primary carriers. The Florida regional companies rated by A.M. Best maintain appropriate levels of capitalization and purchase significant catastrophe reinsurance protection; however, these programs have not been tested with a severe event such as Hurricane Irma. The Florida insurance market as a whole already is being pressured by escalating losses associated with the Assignment of Benefits.

A.M. Best expects the majority of reinsurers to incur losses from this event, although the ultimate financial impact will depend on the storm track and the damages inflicted. Should Hurricane Irma’s impact amount to an insured industry loss above $75 billion, the reinsurance sector likely is to incur a meaningful underwriting loss for the full year and experience a modest loss of capital. Those reinsurers that have historically specialized in property catastrophe reinsurance or are more U.S.-centric and have maintained their risk appetites for Florida and Caribbean property catastrophe risks are likely to be more disproportionately impacted by these losses. Although A.M. Best expects the impact to reinsurers’ earnings to be more pronounced as a result of pricing erosion in recent years, balance sheets are extremely strong and have been stress-tested sufficiently to absorb extreme losses.

To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=265510.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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