Irma to create notable losses but limited impact on reinsurers’ capital


Hurricane Irma, which is ranked as one of the most powerful Atlantic storms on record, has created notable losses for global reinsurers but will have only a limited impact on the sector’s capital, according to an AM Best report.

The storm struck the US mainland as a Category 4 hurricane on Sunday, September 10, but its impact on reinsurers will largely depend on cedants’ retention levels as well as the amount of losses absorbed by the capital and collateralised markets.

Renaissance Re, Everest Re, Validus Re, and Lloyd’s have historically committed significant amounts of capacity to this market.

Over the past few years, however, 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 minimise their exposures, given the deterioration in pricing conditions for the property catastrophe market.

Reinsurers that have historically specialised 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.

Hurricane Irma, AM Best, Reinsurance, North America

Bermuda Re