Insurers, reinsurers and ILS investors could face significant losses from Hurricane Michael, a major Category 4 storm that began its assault on the Florida Panhandle Wednesday, according to a briefing from A.M. Best.
Best said although Florida’s insurance market-share leaders possess strong levels of risk-adjusted capitalization that should provide a buffer against Hurricane Michael losses, there will still be an impact for insurers writing in the state, according to a new A.M. Best briefing.
“Depending on the storm’s intensity after making landfall, the potential for insurable losses could put some pressure on reinsurers, as well as primary insurers,” Best said in the briefing “Insurers and Reinsurers Brace for Hurricane Michael Catastrophe Losses,” released by the ratings agency Wednesday.
Still, A.M. Best said it does not anticipate a large number of rating actions related to Hurricane Michael, as catastrophic events such as this one already have been considered in insurance companies’ current ratings and outlooks. Insurers with the largest market shares in U.S. states to be hit by Hurricane Michael have considerable exposures, but these are manageable given each company’s overall policyholder surplus, Best said.
Furthermore, while nearly all A.M. Best-rated Florida property companies have substantial property catastrophe premium, some have strategically limited their exposures in the panhandle, and therefore are not significantly exposed to this hurricane.
“However, the question of how the state’s relatively new, Florida-specific insurers might withstand the impact of substantial insurable losses caused by Hurricane Michael remains,” Best noted. “In addition, depending on the storm’s intensity after making landfall, the potential for insurable losses could put some pressure on reinsurers. The actual impact of the hurricane will depend on a number of yet undetermined factors, but A.M. Best believes that most of the affected rated carriers have sufficient capital and appropriate reinsurance programs to withstand this event effectively.”
Best said from a pure market-share perspective, in terms of both direct premiums related to the property catastrophe exposed lines of business—homeowners, farmowners, automobile physical damage, commercial multiperil (property), and fire & allied lines—the companies with the largest market shares are large, national writers such as GEICO (Berkshire Hathaway), State Farm, and Progressive.
Best said for these organizations, the size of their Florida portfolios relative to their policyholders’ surplus is relatively small.
“These companies have the balance sheet capacity and support via reinsurance to withstand the level of losses they can expect with respect to their portfolios without a significant impact,” Best said.
Hurricane Michael losses will be much more substantial for the smaller companies, particularly single-state Florida writers with portfolios predominantly comprised of catastrophe-exposed lines of coverage, namely homeowners.
Assignment of Benefits Issues
Best said that the potential for a substantial number of claims to arise from storm surge and inundation-related damage attributable to Hurricane Michael also could exacerbate Florida’s continuing assignment of benefits problems.
“With Hurricane Michael hitting central and northwest Florida, A.M. Best believes the difficulties property writers have been encountering may get worse before any efforts to curtail the recent trend can take hold,” Best said. “An escalation could limit consumer choice if insurers cease writing or begin non-renewing policies in areas with a high volume of water losses. A.M. Best has already observed a decrease in appetite for risks in the southeast Tri-County area, which to date has been most impacted by the assignment of benefits issue.”
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