US P/C market rocked but resilient after storms, claims S&P
S&P Global Ratings has announced that it expects US property/casualty (P/C) insurers’ credit to be resilient in the face of hurricanes Harvey, Irma and Maria (HIM) in its latest rating report: US P/C insurance ratings are intact following hurricanes Harvey, Irma, and Maria, but the 2017 Atlantic hurricane season continues.
S&P added the caveat that these hurricanes occurred in the middle of an Atlantic hurricane season with expected above-average activity in a year of unusually frequent and severe natural catastrophes and that as a result, future events could still affect S&P’s ratings.
The rating agency said there isn’t consensus among the vendor catastrophe modelling firms regarding third-quarter hurricane loss estimates. In particular, given the wide range in estimates for Maria, they vary by more than $100 billion.
According to S&P: “We don’t believe US P/C insurers have overweight positions in Puerto Rico, although we may see some loss from the island as the nature of losses are better understood, particularly those related to business interruption. We also question corporate insureds’ plans to rebuild in Puerto Rico, which could influence insured costs.”
Maria aside, Harvey and Irma could cost the insurance and reinsurance industries (for direct US exposures excluding the National Flood Insurance Program), $60 billion, adding to the $15 billion of catastrophe losses in the first half of the year. This puts the toll as high as $75 billion of insured losses, with the Atlantic hurricane season only halfway through, meaning 2017 could be a worse catastrophe year than 2005, when there was $77 billion in insured losses related to hurricanes Katrina, Wilma, and Rita.
“The magnitude of these events is monumental but will not fundamentally shift US P/C insurers’ strong creditworthiness, based on our portfolio assessment,” S&P stated. “We believe that the US P/C insurance sector, in aggregate, is well capitalised with record-high surplus levels ($709 billion as of March 31, 2017, according to Insurance Services Office) to absorb these losses.
“So far, we are not taking any rating actions on US P/C primary insurers. Any rating actions we might take won’t be solely because of these hurricane catastrophe losses, but will be in conjunction with insurers’ capital deployment plans. We will monitor the evolution of losses and could take actions progressively if warranted.”
S&P said that it believes the accumulated losses, particularly from HIM, will have material unfavourable effects on the earnings of US P/C insurers and that it had already anticipated an industry combined ratio above 100 percent.
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