A large catastrophic hurricane in 2016 would likely promote a shift towards positive pricing movement following years of property insurance pricing declines in the U.S. property/casualty market, according to Fitch Ratings’ 2016 annual hurricane season reference report. However, 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.
“Meteorologists predict an average hurricane season and insurers and reinsurers in 18 major U.S. 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,” said Christopher Grimes, director, Fitch Ratings.
U.S. Insurers have benefited 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. Still large natural catastrophe losses, including hurricanes are a primary source of potential earnings and capital volatility for the p/c industry.
Given the current very strong industry capital position, 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 is a growing level of interest in alternative reinsurance including catastrophe bonds and collateralized reinsurance vehicles (sidecars). To date, there have been $2.0 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.
The report ‘Hurricane Season 2016: A Desk Reference for Insurance Investors’, provides analysis on potential effects of a major storm season on large insurance companies based on direct premium property insurance market share by state, and the industry as a whole and is available at www.fitchratings.com.
Source: Fitch Ratings
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