OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best expects insurance companies providing property/casualty protection in the areas of the Caribbean impacted by Hurricane Irma to suffer substantial losses as a result of the heavy storm damage. Hurricane Irma made landfall in Barbuda, in the eastern Caribbean, early on Sept. 6, 2017, with Category 5 winds of 185 mph, and could potentially hit Florida in the coming days.
A new Best’s Briefing, “A.M. Best Comments on Potential Impact of Hurricane Irma on Caribbean Property/Casualty Insurers,” notes that most insured losses will be passed through to financially strong reinsurers providing property catastrophe reinsurance protection to the primary carriers. The net retention level for most rated carriers is generally less than 10% of shareholder equity. Reinsurance limits also are typically high enough to cover losses well above anything that has been experienced in the past. However, Hurricane Irma is not a typical modeled storm, and depending on the magnitude of damages sustained, losses from the hurricane could be considerably larger than anticipated. With Hurricane José potentially days behind, primary carriers often are quick to reinstate reinsurance limits once the first event has occurred.
A.M. Best’s Credit Rating assessment includes an analysis of a company’s balance sheet strength and risk-adjusted view of capitalization, which incorporates the modeled impact from catastrophes. For wind events, A.M. Best capital stress scenarios utilize a modeled loss estimate over a 1-in-100-year time period, which equates to a 1% loss probability. With Hurricane Irma at Category 5 strength, an extreme catastrophe event of this magnitude gives A.M. Best reason to pause in terms of what, if any, rating actions will occur as a result of the hurricane. Ultimately, the financial strength of these Caribbean insurers largely will depend on the magnitude of the losses sustained, the type of reinsurance utilized, reinsurance limits purchased and the support of their reinsurance partners, who have always provided a financial backstop in the past.
While tail events such as this one are rare, A.M. Best will continue to watch Hurricane Irma very closely, as its projected path includes Florida. At the same time, A.M. Best plans to work with its rated insurance clients in this region to assess the storm’s impact on these insurers.
To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=265437.
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