Hurricane Beryl passes Jamaica overnight and heads towards the Yucatan Peninsula.
NOAANational Hurricane Centre
4 July 2024News

Beryl's early arrival may drive up reinsurance rates

The severity of Hurricane Beryl so early in the Atlantic hurricane season will act as a warning sign to the insurance industry and may drive up prices for insurers buying third or fourth event reinstatement cover, AM Best has warned. 

Noting that overall losses from the category 5 hurricane will not be determined for some time, the ratings agency said Caribbean primary insurers had already faced challenging reinsurance conditions in recent years as the reinsurance industry reduced its capacity in the region.

AM Best made the comments  as Beryl roared past Jamaica overnight and was expected to pass to the south of the Cayman Islands today. The storm, now a category 4, earlier killed at least seven people and caused significant damage in the southeast Caribbean.

Wind-whipped rain pounded the island for hours as residents heeded authorities’ call to shelter until the storm had passed. Power was knocked out in much of the capital, the Associated Press reported. 

Prime Minister Andrew Holness said on Wednesday afternoon that nearly 500 people were placed in shelters.

By evening, he said that Jamaica has not seen the “worst of what could possibly happen.”

A hurricane warning was in effect for Jamaica, Grand Cayman, Little Cayman and Cayman Brac, and the coast of the Yucatan Peninsula of Mexico from Puerto Costa Maya to Cancun. 

Beryl was forecast to weaken slightly over the next day or two, but still be at or near major-hurricane strength when it passes near the Cayman Islands today and into Mexico’s Yucatan Peninsula today or tomorrow, according to the US National Hurricane Centre.

AM Best said: "While the losses to the reinsurance industry are likely to be within risk appetite and contained in their earnings, cost pressures in higher frequency excess reinsurance layers have driven some carriers to increase retentions modestly. As a result, the earnings impacts may be more severe for Beryl than for storms in prior years. 

"A hurricane of this magnitude early in the hurricane season would act as a warning sign for the industry as it braces for the rest of the hurricane season. 

"The largest impact to results in 2024 may end up being the cost associated with purchasing third- or fourth-event reinsurance reinstatement cover. Companies do not always purchase this cover, but a severe storm so early in the season may require protection from additional CAT events at what is likely to be premium prices."

The ratings agency said higher rated global reinsurance carriers had reduced their capacity in the region in 2023, meaning insurance companies had filled the gap with reinsurers new to the region.

"However, they may carry lower ratings and therefore negatively impact the capital requirements for primary carriers. Renewals were much more orderly and capacity constraints were less severe in 2024, but prices remained hard. Many local carriers were counting on profit commissions to support earnings in 2024-2025 and help offset higher CAT XOL costs, which losses from Beryl may impact."

The ratings agency noted that tourism is a major contributor to the economies of Caribbean nations and insurable risks had also increased in the last decades, but this had led to owners being underinsured or uninsured. 

"Severe losses from storm activity may impact the physical construction of new tourism assets in the affected territories and constrain the insurance cover required to pursue additional investment in infrastructure necessary to support additional tourism," AM Best said. "Severe storm damage therefore has the potential to be a multi-period drag on the local economies of affected territories.

"Because of these factors and others, Caribbean insurers’ results over the near term could be pressured by Beryl. AM Best will continue to monitor the situation and have ongoing discussions with insurers on the impact.”

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