U.S. Insurance Industry Has Capacity to Withstand Hurricane Perils in 2013: Fitch

Enough capacity remains available in the (re)insurance markets to provide sufficient coverage and withstand potential losses from hurricane related perils as the U.S. tropical storm season approaches, according to Fitch Ratings’ annual hurricane season desk reference report.

This is the eighth edition of Fitch’s annual hurricane season desk reference, providing analysis on the potential effects of a major storm season on large insurance companies and the industry as a whole. The report also compares forecasts for the 2013 hurricane season from several market experts, including National Oceanic and Atmospheric Administration (NOAA), Colorado State University (CSU) and Tropical Storm Research (TSR).

Early forecasts for the 2013 U.S. hurricane season predict that the North Atlantic Basin is more likely to experience above-average hurricane frequency relative to long-term results, as a number of environmental forces appear positioned to produce above-average storm activity.

Pricing on U.S. hurricane-exposed property business has generally improved on the heels of losses experienced due to Superstorm Sandy and Hurricane Isaac in 2012. The emergence of losses related to these events has been a catalyst for positive pricing movement in the primary U.S. property insurance market, specifically in regions and lines of business with significant catastrophe exposure. However, in the reinsurance space, catastrophe reinsurance pricing, particularly in the higher profile Florida market, continues to be dampened by an abundance of underwriting capacity and growing competition from alternative reinsurance products.

The capital markets remain a strong and growing presence in the market for underwriting and offering protection from catastrophe risks. The continued low interest rate environment, along with the desire of (re)insurance companies to utilize alternatives to the traditional insurance risk transfer market, has generated significant growth in new capital from third-party investors. The process of insuring higher catastrophe-exposed areas, including Florida, continues to evolve as insurers of high-risk property test the waters of alternative risk transfer.

Source: Fitch Ratings