AM Best: Harvey unlikely to breach reinsurance limits
A new report from AM Best claims that anticipated losses from Hurricane Harvey are unlikely to exceed the top reinsurance limits of insurers writing business in Texas.
The report, titled, “Texas Insurers Expected to Withstand Losses from Hurricane Harvey”, claims that the recent soft market conditions has allowed primary insurers to obtain favourable terms from reinsurers, including higher limits on catastrophe programs and extended hours clauses. Given the scope of the event, it will be difficult to determine final damage assessments as the top priority remains on rescue efforts throughout southeast Texas.
“Leading up to Hurricane Harvey, several Texas insurers experienced a challenging first half 2017 as a result of spring weather losses,” said Angelo Lozano, a financial analyst with AM Best. “Combining those first half of 2017 losses with those from Hurricane Harvey may have an impact on company earnings and capitalisation, which could add additional negative rating pressure.”
As a result the rating agency does not anticipate a significant number of rating actions related to Hurricane Harvey, but does expect to see pressure on performance for regional property and auto writers, particularly those focused on writing business in the impacted area. At the moment AM Best rates 15 insurers with Texas premium revenue accounting for greater than 50 percent of their total book of business; four of those insurers currently have a negative outlook at their current rating levels.
Hurricane Harvey has so far been an unprecedented flooding disaster for Houston, the fourth largest city of the US, making it a major event for the commercial insurance sector.
AM Best said that commercial insurance claims are expected to comprise an outsized portion of overall covered losses from the storm, as flood – rather than wind – has been a driver of damage. Commercial insurance policies, particularly those covering large and complex properties, may provide some coverage for flood as a covered peril. Given the complex nature of commercial claims related to flood, companies are not in a position to provide loss estimates at this time.
“While earnings for the third quarter 2017 will clearly be impacted, at this time, AM Best does not anticipate that Harvey will prove to be a capital event for the commercial segment overall,” said Jennifer Marshall, director, AM Best. “The impact on individual companies will continue to be assessed as the situation stabilises and loss estimates are made available.”