Best’s Briefing: Hurricane Maria Could Erode Financial Strength of Caribbean and Puerto Rico Insurers

Business Wire

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best believes Hurricane Maria could be the barometer for testing the financial strength of some insurance companies with concentrations of property risk in the Caribbean, particularly those carriers that already have been negatively impacted by Hurricane Irma and late-2016’s Hurricane Matthew.

A new Best’s Briefing, titles, “Hurricane Maria Could Test Financial Strength of Caribbean/Puerto Rican Insurers,” states that many insurers in the Caribbean and in Puerto Rico will be tested as they brace for the second hurricane to hit the region in two weeks. The effects if this Category 5 hurricane could be devastating to insurers and reinsurers, as the track that Hurricane Maria takes could hit areas with higher insured values, and that areas that already have sustained damages due to Hurricane Irma may suffer further damage, which would lead to concerns about which event was responsible for which damage. In addition, reinsurance limits after Hurricane Irma need to be reinstated, and although most companies have automatic reinstatement coverage to protect against a second event, not all companies are prepared to cover a third.

According to the briefing, many catastrophe reinsurance contracts also feature profit-sharing provisions, whereby a percentage of underwriting profit is returned back to the ceding company. Several companies with exposures to Hurricane Irma have already lost millions of dollars in profit commissions due to last year’s Hurricane Matthew, and likely will lose millions more as a result of hurricanes this year.

Finally, the growing frequency of severe hurricanes in the Caribbean could result in higher reinsurance costs when contracts are negotiated next year.

Although Hurricane Irma spared Puerto Rico from a direct blow, the U.S. territory currently sits directly in the path of Hurricane Maria. The island’s property/casualty insurers, like their Caribbean counterparts, have generally modest retentions relative to surplus. In addition, most have significant vertical protection for a severe event. However, Hurricane Maria does not appear to be a typical modeled event and could generate outsized losses.

The briefing notes that Hurricane Irma did not breach a majority of the insurance companies’ net catastrophe reinsurance limits, and so most insurance companies covering Puerto Rico have not faced reinstatement protection premium charges, and, unlike their Caribbean counterparts, have not faced significant infrastructure challenges as a result of Hurricane Irma.

A.M. Best is monitoring the effects of these storms on its rated insurers and cautions that a continuation of such extraordinary hurricane activity could exact pressure on Credit Ratings.

To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=265818.

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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