Favourable reinsurance terms will help insurers weather Harvey

Insurers are expected to weather losses stemming from Hurricane Harvey relatively well in part thanks to the better reinsurance deals many have secured during the soft market, according to AM Best.

In a new report, the rating agency says that most insurers’ losses are unlikely to exceed the top reinsurance limits of insurers writing business in Texas. In part, this is because over the past several years, the soft reinsurance market has allowed primary insurers to obtain favourable terms from reinsurers, including higher limits on catastrophe programmes and extended hours clauses.

It stresses that, given the scope of the event, it will be difficult to determine final damage assessments as the top priority remains on rescue efforts throughout southeast Texas.

While it does expect to see pressure on performance for regional property and auto writers, particularly those focused on writing business in the impacted area, it does not anticipate a significant number of rating actions related to Hurricane Harvey.
Currently, AM Best rates 15 insurers with Texas premium revenue accounting for greater than 50% of their total book of business; four of those insurers currently have a negative outlook at their current rating levels.

“Leading up to Hurricane Harvey, several Texas insurers experienced a challenging first half 2017 as a result of spring weather losses,” said Angelo Lozano, a financial analyst with AM Best. “Combining those first half of 2017 losses with those from Hurricane Harvey may have an impact on company earnings and capitalization, which could add additional negative rating pressure.”

Hurricane Harvey is proving to be a major event for the commercial insurance sector. As was the case following Superstorm Sandy in 2012, commercial insurance claims are expected to comprise an outsized portion of overall covered losses from the storm, as flood – rather than wind – has been a driver of damage.

Commercial insurance policies, particularly those covering large and complex properties, may provide some coverage for flood as a covered peril. Given the complex nature of commercial claims related to flood, companies are not in a position to provide loss estimates at this time.

“While earnings for the third quarter 2017 will clearly be impacted, at this time, AM Best does not anticipate that Harvey will prove to be a capital event for the commercial segment overall,” said Jennifer Marshall, director, AM Best. “The impact on individual companies will continue to be assessed as the situation stabilizes and loss estimates are made available.”

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