Hurricane Maria to test Caribbean/Puerto Rican insurers

Hurricane Maria is set to hit the same Caribbean/Puerto Rican insurers which have already been impacted by Hurricane Irma, AM Best said in a Sept. 19 report.

Hurricane Maria is projected to arrive in Puerto Rico by mid-day Wednesday (September 20) as a Category 5 storm.

Hurricane Irma hammered much of Florida on Sunday, September 10, through the next day, with rain and winds that ripped off roofs, downed trees, caused widespread power outages, and flooded towns.

Initial loss estimates from Hurricane Irma for several Caribbean-domiciled companies are likely to be in the hundreds of millions of dollars. However, these same companies will look to their reinsurance partners to trim down these losses to between $2 million and $5 million, the report said.

Company loss estimates up to this point are to be considered somewhat limited, as many property owners affected by the storm have yet to file claims, leaving insurers to rely on catastrophe modelling to estimate their losses. In some cases, insurers, insurance brokers, and agents are not operating at full capacity, given that their own workplaces and private homes have suffered damage. Power outages also have prevented some insurers from getting their computers up and running. To combat some of these problems, reinsurance cash calls have been made and additional claims adjusters have been solicited from outside the Caribbean.

Hurricane Maria is the second major hurricane to hit the region in the last two weeks, following fast on the heels of Irma. With sustained winds of 160 miles per hour, Maria has already devastated the island of Dominica and is on a path similar to Hurricane Irma’s—the Leeward Islands and the Virgin Islands, which have already been devastated by Irma, are bracing for yet another hit.

A strike by Maria could severely test the financial strength of some of the insurers with concentrations of property risk in the Caribbean. Maria’s greatest impact may be felt in areas with higher insured values. In addition, areas that may already have sustained damages may suffer further damage, which would lead to concerns about which event was responsible for which damage, AM Best said.

Also, reinsurance limits after Hurricane Irma need to be reinstated. Although most companies have already purchased automatic reinstatement coverage to protect against a second event, not all companies are prepared to cover a third. Some companies are in the process of negotiating terms to reinstate all or a percentage of their initial cat treaty limits should they sustain further losses due to Hurricane Maria, which could cost them more than had they prepaid for the coverage.

Furthermore, many catastrophe reinsurance contracts feature profit-sharing provisions, whereby a percentage of underwriting profit is returned back to the ceding company. Several of the companies with exposures to Hurricane Irma had already lost millions of dollars in profit commissions due to last year’s Hurricane Matthew and will likely lose millions more as a result of hurricanes this year.

Finally, the growing frequency of severe hurricanes in the Caribbean could result in higher reinsurance costs when contracts are negotiated next year.

Among the most exposed insurers to Puerto Rico’s fire and allied lines are MAPRE North America Group, Cooperativa Seguros Group, Assurant P&C Group, and American International Group (AIG), according to AM Best. Among the most exposed to the US Virgin Islands’ fire & allied lines are underwriters at Lloyd’s, Assurant P&C Group and Guardian Insurance Group.

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