destroyed by Hurricane Irma in Havana, Cuba
(source: Yamil Lage / AFP – Getty Images)
[dropcap]L[/dropcap]loyd’s of London said it had paid out almost US$750m on claims from hurricanes Harvey, Irma and Maria, which devastated parts of the Caribbean and the US in August and September.
The London insurance market is facing about $4.5bn of payouts in total from the three storms.
Jon Hancock, performance director, said: “When you get three catastrophic weather events as well as earthquakes in Mexico and flooding in Asia all happening so close to each other, it’s essential to make sure the market’s claims response moves as quickly as possible to help people rebuild their lives.”
He added: “We have made advance payments on a range of reinsurance programmes for local insurers to make sure they have the funds to pay claims locally — both in Texas and the Caribbean.”
But concerns are growing about the impact that the payouts will have on the market. Last Thursday Standard & Poor’s Global Ratings revised its outlook on Lloyd’s to negative from stable, although it left its A+ credit rating intact.
“These losses are significant relative to peers and Lloyd’s annual earnings, and emphasise the market’s exposure to catastrophe risk,” S&P said in a statement.
It added that the market could restore its capital position after the payouts, but there was still the chance of further significant losses and uncertainty about the potential for insurance premiums to rise because of the storms.
Last Friday S&P said that it expected the credit ratings of US property and casualty insurers to be “resilient” after the hurricanes but it was not so confident about the global reinsurance industry. It said that the storms, together with the Mexican earthquake: “will likely wipe out the industry’s annual earnings and ultimately become a capital event for the global reinsurance sector.”
The wider impact of the losses on the industry is becoming clearer as insurers have updated investors on their exposure in recent weeks. This week Scor, the France-based reinsurer, put its exposure at €430m. Analysts said the company had managed to almost halve its potential losses because of retrocession, which is the insurance that reinsurers buy.
In the US, AIG said it expected a $3bn hit from the three hurricanes, along with the earthquakes in Mexico.
It is not expected to get protection from reinsurance because each event cost it less than $1.5bn, the level at which the cover kicks in.
Analysts at Barclays said that the impact of the storms on the US property and casualty insurance industry should be “manageable”. “Although [third quarter] US P&C industry underwriting results are expected to be among the worst ever, it should result in break-even US industry earnings for the year including the benefit of recurring investment income,” they wrote last week.
Not everyone is so sanguine, however. In a blog post, Dominick Hoare, the chief underwriting officer of Munich Re’s syndicate at Lloyd’s, predicted that “there will be a material number of (re)insurer failures, and, in addition, many (re)insurers will have to retract their underwriting due to capital constraints”.
