IFRS 17 may alter insurers’ strategy
Fitch Ratings has claimed that 2017 catastrophe losses for the global insurance and reinsurance sectors will exceed $100 billion and could reach close to $190 billion on a pretax basis.
The losses, which include Hurricane Maria, could be the highest on record in a single year if the upper estimates are accurate and could weaken capital at some (re)insurers and increase the risk of rating downgrades.
According to figures published by AIR Worldwide on Monday, some loss estimates for Hurricane Maria alone come $85 billion. This comes on top of $50 billion in upper-end expected losses from Hurricane Irma, $25 billion from Hurricane Harvey, $3 billion from Mexico earthquakes and over $20 billion in first-half catastrophic losses from various other events.
The estimates compare to total statutory capital of the US property casualty industry of over $700 billion and total global reinsurance capital of approximately $600 billion. The latter figure includes Berkshire Hathaway and alternative capital sources. There is some overlap in the two capital figures.
Fitch said that given the magnitude of the Maria-estimated losses, it believes that 2017 catastrophe losses will constitute a capital event for a number of (re)insurance companies, as opposed to just an earnings event. However, the industry's very strong capital levels going into this year greatly limit any risks to solvency.
Fitch therefore thinks that there is heightened risk that combined loss concentrations to these events for several (re)insurers will result in a capital decline for full-year 2017. This could result in ratings downgrades if not addressed through capital raises or other mitigating actions.
Within Fitch’s ratings coverage, global reinsurers are likely the most exposed to these events, as Fitch's ratings coverage of local Puerto Rican insurers, as well as Florida specialty companies, is limited. However, some larger diversified primary insurers in the US and select players globally will report material catastrophe losses.
Fitch has not yet identified any specific (re)insurance companies with disproportionate combined or individual exposures but will continue to gather fuller exposure information as it becomes available. The greatest threat to ratings would be in cases where losses materially exceeded a (re)insurer's modeled estimates, which could indicate some weaknesses in risk management processes.
If any rating actions are ultimately taken, they likely would not come until after (re)insurers are able to compile actual loss information. However, if Fitch’s analysis of exposure data and modeled estimates, especially for Puerto Rico, highlight individual cases where there is significant risk, the rating agency would expect to put such companies' ratings on Rating Watch until more definitive information is available.
Fitch said that direct writers with the largest non-life 2016 market shares in Puerto Rico include Universal Insurance Group, subsidiaries of Mapfre, Cooperativa de Seguros Multiples Group, Triple S Group and Caribbean Alliance Ins, based on filings with the National Association of Insurance Commissioners. Fitch believes many global reinsurers participate in the Puerto Rican market.
Fitch Ratings, Catastrophe losses, Hurricane, US, Insurance, Reinsurance, North America