Large hurricane likely to increase property insurance prices: Fitch
A large catastrophic hurricane in 2016 would likely promote a shift towards positive pricing movement following years of property insurance pricing declines in the US property and casualty (P/C) market, according to the annual Fitch Ratings' hurricane season reference report.
Fitch said an abundant available underwriting capacity for primary and reinsurance property coverage is also likely to diminish the magnitude of any upward price movement compared with past market cycles.
Insurers from the US have benefitted from less severe catastrophe related losses in each of the last three years. The state of Florida has not experienced a hurricane landfall in over a decade. Large natural catastrophe losses, including hurricanes are still a primary source of potential earnings and capital volatility for the P/C industry.
Given the current very strong industry capital position, Fitch said it would likely take storms losses equal to 15 percent or more of industry aggregate surplus for Fitch to change its P/C sector outlook to negative tied to catastrophe experience. The potential ratings impact of a major catastrophe or series of events on individual (re)insurers will vary by company exposure in loss-affected areas.
In an effort to transfer risk from traditional reinsurance, there has been a growing level of interest in alternative reinsurance including catastrophe bonds and collateralised reinsurance vehicles (sidecars), according to Fitch.
To date, there has been $2 billion catastrophe bonds issued in 2016. Large repeat sponsors include USAA Insurance Group and Nationwide Mutual Group as well as new sponsors Security First Insurance Company and Unite Property and Casualty Group.
Christopher Grimes, director of Fitch Ratings, said: "Meteorologists predict an average hurricane season and insurers and reinsurers in 18 major US coastal states are well positioned to manage losses; however, insurers could face torrential blowback if there is a record breaking storm or battery of storms in succession."
