2017 cat losses could reach $190bn and mean downgrades

Following the devastation caused by Hurricane Maria, 2017 catastrophe losses for the global insurance and reinsurance sectors will exceed $100 billion and could reach close to $190 billion on a pre-tax basis, according to Fitch Ratings.

Losses on this scale, which at the upper end would be the highest on record in a single year, could weaken capital at some re/insurers and increase the risk of rating downgrades.

Upper-end loss estimates for Hurricane Maria alone are $85 billion, according to figures published by AIR Worldwide. This comes on top of $50 billion in upper-end expected losses from Hurricane Irma, $25 billion from Hurricane Harvey, $3 billion from Mexico earthquakes and over $20 billion in first-half catastrophic losses from various other events.

These estimates compare to total statutory capital of the US property casualty industry of over $700 billion and total global reinsurance capital of approximately $600 billion. The latter figure includes Berkshire Hathaway and alternative capital sources. There is some overlap in the two capital figures.

Given the magnitude of the Maria-estimated losses, the rating agency said it now believes that 2017 catastrophe losses will constitute a capital event for a number of re/insurance companies, as opposed to just an earnings event. However, the industry's very strong capital levels going into this year greatly limit any risks to solvency.

“As a result, we believe there is heightened risk that combined loss concentrations to these events for several (re)insurers will result in a capital decline for full-year 2017. In some cases, this could result in ratings downgrades if not addressed through capital raises or other mitigating actions,” Fitch said.

“Within our ratings coverage, global reinsurers are likely the most exposed to these events, as Fitch's ratings coverage of local Puerto Rican insurers, as well as Florida specialty companies, is limited. However, some larger diversified primary insurers in the US and select players globally will report material catastrophe losses.

“We have not yet identified any specific (re)insurance companies with disproportionate combined or individual exposures but will continue to gather fuller exposure information as it becomes available. The greatest threat to ratings would be in cases where losses materially exceeded a (re)insurer's modeled estimates, which could indicate some weaknesses in risk management processes.

“If any rating actions are ultimately taken, they likely would not come until after (re)insurers are able to compile actual loss information. However, if our analysis of exposure data and modeled estimates, especially for Puerto Rico, highlight individual cases where there is significant risk, we would expect to put such companies' ratings on Rating Watch until more definitive information is available.”

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