OLDWICK, N.J.--(BUSINESS WIRE)--The socioeconomic impact of COVID-19 has been a catastrophe for the entire Caribbean region, on top of current and prior-year tropical storm activity that has led to reinsurance price firming, especially in loss-affected areas, according to a new AM Best report.
In its Best’s Market Segment Report, titled, “Caribbean Property/Casualty Insurers Suffer Double Blow From Rising Reinsurance Rates and COVID-19,” AM Best states that the pandemic is testing the risk management programs and capabilities of its rated Caribbean property/casualty (P/C) insurance companies. It has forced insurers to focus on business continuity and address growing cyber risk threats, as their organizations adjust to the reality of working remotely. Furthermore, the contraction in most Caribbean economies owing to COVID-19 mitigation efforts may strain insurers’ profitability and delay the implementation of growth and strategic initiatives.
In AM Best’s view, rated Caribbean P/C insurers are unlikely to see the growth they have experienced in recent years—and may even experience a reversal in positive trends. Caribbean governments are starting to reopen their borders to commerce, but predicting the length and depth of the pandemic and thus recovery timelines is not possible. The COVID-19-fueled downturn in the equity markets, the rather abrupt slowdown in the global economy and the continuation of low prevailing interest rates have imposed constraints on insurers’ profits. The recent rebound in the equity markets has been a net positive for some, but forecasts and financial metrics will likely be lowered. These events have exacerbated uncertainty about revenue forecasts and potential balance sheet impairments related to investment risk for the rated Caribbean insurers with exposure to U.S. or international investment risks.
The COVID-19 outbreak will reverse the slow but steady economic growth that took place from 2011 to 2019 in many of the tourism-dependent economies in the Caribbean. Many of these tourism-source countries are now facing economic recessions because of the pandemic, with severe contractions in economic activity and high unemployment rates. Natural catastrophes remain the overarching risk to P/C companies in the Caribbean, and significant use of reinsurance is the primary mitigation tool against these exposures. Following the 2016-2017 hurricanes, overall net income rebounded in 2018, and in 2019, the consolidated net income of AM Best-rated P/C insurers improved four-fold to $36.4 million over 2018, despite the negative impact of Hurricane Dorian on the results of Bahamas-domiciled insurers.
AM Best will continue to engage with rated Caribbean insurers to assess any potential rating implications due to the global economic volatility. AM Best recently revised the outlooks to negative on the ratings of several life/health insurance companies operating in the Caribbean (see the related press release).
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=301251.
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