A.M. Best Report: Caribbean General Insurers Still Profitable Despite Challenges

The Caribbean general insurance market remains profitable, albeit challenging, for participants, according to an A.M. Best special report titled “Caribbean-based General Insurers: What Lies Ahead?”

The report says that the region is susceptible to major storm damage, earthquakes and flooding, which can be exacerbated by economic, political and catastrophe modeling challenges. Overall, Caribbean general insurers rated by A.M. Best have been profitable, on an operating and bottom line basis over the past five years. These rated companies have also consistently maintained more-than-adequate capitalization relative to their risk profiles.

However, an increasingly competitive landscape has driven Caribbean-based general insurance companies to enhance their profiles in the marketplace, which includes developing relationships with rating agencies. In 2000, only one Caribbean-based insurer was rated by A.M. Best compared with 17 rated general insurers at year-end 2014. Currently, rated Caribbean-based general insurers are listed along with some selected key statistics.

Several key factors have transformed the competitive landscape and influenced operating strategies:

• Industry consolidation on the back of poor economic conditions,
• Increased regulatory scrutiny,
• Increased and evolving accounting and reporting guidelines,
• Globalization of the region, and
• Excess reinsurance capacity.

The Caribbean economies have struggled for growth over the past several years due to their dependence on U.S. and European tourism as a major source of revenue. As the U.S. and European economies return to self-sustaining growth, the level of Caribbean tourism is expected to recover to post-recession levels, boosting the local economies. The prolonged economic slowdown in the region has led to some contraction of insurance markets as a result of increased price competition and more selective consumers.

Caribbean-based general insurers generally operate in markets with limited growth potential. Acquisitions of other insurers or existing blocks of businesses have been the main growth vehicle in recent years. This has led to industry consolidation with fewer market participants. The remaining insurers are larger, stronger entities, and in general, are better able to withstand the impacts of natural catastrophes, unexpected losses and adverse changes in underwriting results, fluctuating investment returns or investment losses and changes in regulatory or economic conditions.

Source: A.M. Best Company

Topics Carriers Profit Loss AM Best