A.M. Best Special Report: Caribbean General Insurers Riding Wave of Decreased Hurricane Activity, Lower Reinsurance Costs

OLDWICK, N.J.--(BUSINESS WIRE)-- Most rated Caribbean general insurers remained profitable in 2016, despite persistently soft markets, low interest rates and strong competition that led to a 32.0% decrease in overall net income. This composite of insurers has generated strong earnings over the last five years, primarily as a result of sustained underwriting gains, helped out by a lack of natural disasters in the region.

The Best’s Special Report, “Caribbean-Based Insurers Weathering the Storm,” notes that the lack of a significant hurricane event and the below-average frequency of hurricane activity in the Caribbean in recent years, coinciding with excess capital in the reinsurance marketplace, has resulted in lower reinsurance costs for the region’s general insurers. The soft pricing in the reinsurance sector has been a plus, as these insurers use significant catastrophe reinsurance to protect shareholder equity.

According to the report, the composite of rated Caribbean-based general insurers saw consolidated gross premiums and net premiums decrease in 2016 by 5.0% and 3.9%, respectively. Despite the decrease in overall net income to USD 43.9 million from $64.6 million in the previous year, consolidated surplus remained relatively flat. In addition, rates continued to fall, albeit at a somewhat slower pace. Consequently, margins were squeezed and some deterioration occurred in the combined ratios. The overall combined ratio for rated Caribbean-based general insurers in 2016 was 94.8. Similarly, the composite of rated Caribbean life/health insurers had positive results, with a net income increase of 9.3% to $304 million, despite soft economic conditions in many locations.

Persistently soft markets, costs associated with regulatory compliance and excess reinsurance capacity will continue to test the resolve and underwriting discipline of Caribbean insurers. Furthermore, A.M. Best believes additional headwinds in the form of spread compression, high unemployment, economic uncertainty and higher inflation will pose obstacles for the rated Caribbean insurers. They will find maintaining earnings and market share a challenge amid rigorous competition from their domestic and regional peers. However, rated insurers have traditionally maintained conservative capital management strategies and operating fundamentals, and are thus likely to continue to successfully navigate these very challenging waters.

To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=262225.

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Source: A.M. Best