OLDWICK, N.J.--(BUSINESS WIRE)--With Hurricane Matthew 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 (P/C) industry.
The most recent track of Matthew has the storm path running nearly parallel with Florida’s Atlantic coastline over the next few days, with winds near the eye of the storm projected to approach Category 4 strength, nearly 140 miles per hour. This follows a path that has already caused tremendous damage in Haiti, Cuba, Jamaica, the Dominican Republic, the Bahamas and other areas and islands in the Caribbean. Even without a direct landfall, this storm will likely cause severe property damage along the Atlantic coast of Florida, and potentially, states north of Florida as well.
Tropical storm activity in Florida had been relatively calm in recent years. Prior to 2016, the last direct landfall of a hurricane strength storm (winds greater than 75 miles per hour) in Florida was Hurricane Wilma, a Category 3 hurricane in 2005, though other tropical storms and passing hurricanes have impacted Florida with heavy winds, rain and storm surge in each year since. In September 2016, Hurricane Hermine made landfall as a Category 1 hurricane in the Florida panhandle area, causing heavy flooding and river swelling in a modestly populated area but relatively modest insured losses.
For rated entities, A.M. Best’s Credit Rating (rating) assessment includes a risk-adjusted view of overall capitalization that incorporates a reasonably severe event, as well as detailed analysis of insurer’s catastrophe reinsurance programs. As catastrophic events have already been factored into the analysis, A.M. Best does not anticipate taking a significant number of rating actions associated with Hurricane Matthew. As a vast majority of A.M. Best-rated entities possess broad business profiles with product and geographic diversification, they are also in a much stronger position to absorb this catastrophic loss than are dedicated Florida property writers. Nonetheless, A.M. Best-rated entities within the regions impacted will be evaluated relative to previous loss expectations and any material deviations could potentially lead to negative rating action in the form of under review modifiers, outlook revisions or rating downgrades.
Although company loss estimates will take time to accumulate, A.M. Best expects all of its rated entities to provide preliminary estimates and/or ranges of their potential loss within a reasonable timeframe. These loss estimates should include any potential effect or involvement of various government-specific “wind” and “beach” residual market mechanisms where 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 some mandatory reinsurance coverage for Florida residential property writers. The NFIP has been stressed by severe flooding events in recent years (including Katrina in 2006 and Sandy in 2012) and recently purchased private reinsurance coverage to help maintain their claims-paying abilities. Conversely, the FHCF has not endured a major event in recent years and has seen its liquidity improve over that time.
A.M. Best will continue to monitor the financial impact of Hurricane Matthew on A.M. Best-rated entities and will provide updates on ratings as necessary.
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