Fitch: U.S. Insurers Set To Weather 2017 Hurricane Risk, Pricing Woes Linger

Fitch Ratings-Chicago-31 May 2017: U.S. property/casualty (P/C) insurer industry capital strength is very strong and most insurers should be able to absorb near-term volatility and the effects of adverse hurricane events, according to Fitch Ratings' 2017 annual hurricane season reference report. However, occurrence of a major catastrophic hurricane could potentially have a significant effect on insurance industry capital.

"2017 is more likely to be an active hurricane season according to meteorologists, but minus any extremely severe storms, most insurers should be able to manage losses that may unfold," said Christopher Grimes, Director Fitch Ratings. "The real storm for p/c insurers continues to be the competitive pricing environment."

Pricing on U.S. hurricane-exposed primary property business has not improved in the wake of modest insured losses related to Hurricane Matthew in 2016. In the reinsurance market, conditions also remain soft due to large volumes of under deployed capital and sluggish demand from buyers, despite increased global catastrophe losses in 2016. Fitch expects pricing conditions to remain challenging in the primary property market, particularly commercial property, as well as at the midyear 2017 reinsurance renewals.

Fitch cautions that the debate over wind versus flood damage to property following a hurricane is an issue that remains highly contested in settling claims as property coverage typically only indemnifies the policyholder for losses that occur as a result of wind damage. With past flood losses driving the debt outstanding of the National Flood Insurance Program (NFIP) to $23 billion, the NFIP recently placed its first risk transfer programs, aiming to lower its net exposure to major catastrophe events. With the NFIP authorization set to expire on Sept. 30, 2017, part of the discussion of reauthorization centers on how private insurers can complement the NFIP going forward.

"In the event that hurricane force wind damage is minimal, flood damage remains a key risk. While most years the premium levels for risk assumed by the NFIP exceeded claims, major flood events blow the balance. The ability of the NFIP to transfer risk to traditional and alternative reinsurance markets, will be a key factor in securing the viability of the program in the face of significant catastrophic flood events," added Grimes.

Florida insurers escaped devastation from Hurricane Matthew and Hurricane Hermine last year and Florida specialist homeowners underwriters were fortunate that insured losses from the 2016 season were relatively limited, compared with years such as 2004 and 2005. However, Fitch notes that a number of Florida homeowners specialty writers remain untested.

"Many growing Florida property insurers have brief histories, untried by a large loss event, which creates uncertainty as to how these firms will respond to a future hurricane that generates significant industry losses," said Grimes.