Hurricane Irma to have limited impact on reinsurers’ capital

Global reinsurers will incur notable losses from Hurricane Irma, but the storm will have only a limited impact on the sector’s capital, ratings agency AM Best said in a Sept. 14 report.

Irma ranked as one of the most powerful Atlantic storms on record before striking the US mainland as a Category 4 hurricane on Sunday, Sept. 10.

The ultimate impact on reinsurers will depend on, among other factors, cedants’ retention levels as well as the amount of losses absorbed by the capital and collateralized markets.

Renaissance Re, Everest Re, Validus Re, and Lloyds have historically committed significant amounts of capacity to this market. However, over the past few years, the vast majority of the reinsurers rated by AM Best have pulled back their capacity or increased their use of retrocessional capacity—much of it in the form of capital market vehicles—to minimize their exposures, given the deterioration in pricing conditions for the property catastrophe market.

Reinsurers that have historically specialized in property catastrophe reinsurance or are more US-centric and have maintained their risk appetites for Florida and Caribbean property catastrophe risks are likely to be more disproportionately impacted by these losses than are peers with greater geographic diversification.

AM Best expects Irma to be more of an earnings event for AM Best-rated reinsurers, given that balance sheets are extremely strong and have been stress-tested sufficiently to absorb extreme losses. There has been some speculation that pricing may harden, but it may be premature to come to this conclusion until loss estimates for Irma, Harvey, and any other events that may occur during the remainder of the year are taken into account. Further consideration of possible dispute risk, as well as the likelihood of alternative capital markets re-entering the property catastrophe market, will also influence future pricing.

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