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Local News>Killer Gustav too tame for insuranceFinancial Gleaner |
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The pummelling the Caribbean and the United States Gulf region endured last week from Hurricane Gustav may not immediately change the "competitive dynamics" in insurance markets.
But already high, and potentially rising catastrophe payouts, will reverse declines, or, even cause a hike in insurance premiums going into next year, the big credit rating company, A M Best, has warned.
At the same time, regional insurer, the Caribbean Catastrophe Risk Insurance Facility, will make no payouts for this storm, saying its wind speed failed to hit the trigger.
It was a similar story last year after Dean wreaked its havoc, $20 billion of it - not powerful enough, said CCRIF's managers.
But Simon Young, the chief executive of CaribRM, on Wednesday held out a ray of hope - for the future - saying the country assessments could offer insights on the development of new products.
... CCRIF will use that data to help develop complementary products to those we currently offer, particularly to cover extreme rainfall events - which is really what Gustav was in countries covered by CCRIF," said Young via email to the Financial Gleaner.
AM Best said Wednesday that it did not see Gustav as an event that would trigger insolvency in insurance companies, although it would continue to evaluate the impact in insurers that operate in the areas hit by the hurricane.
Significant Damage
While Gustav did not cause the level of havoc many feared - initial estimates of insured losses range between US$2 billion and US$10 billion - the hurricane left significant damage in Jamaica, the Dominican Republic, Haiti and Cuba before moving in to the state of Louisiana where it inflicted more destruction.
Jamaica has placed damage so far at J$8 billion, but expectations are that figure will be adjusted in the weeks ahead.
The storm is said to have claimed 10 lives in Jamaica, and 94 overall.
Gustav has been followed hard by two other tropical storms, Hanna and Ike, that have either caused problems or posed threats in the northern Caribbean.
A M Best stressed that while Gustav's impact was not as bad as initially feared, the projected losses from the hurricane "will continue to put pressure on the huge differential between affordable and actuarially sound primary insurance prices in hurricane prices in hurricane exposed regions".
Potential Difficulties
In a striking example of what is being faced and the potential difficulties going forward, A M Best said that a US$4 billion on-shore loss would account for approximately 100 per cent of "the 2007 property catastrophe exposed premiums in Louisiana" - the state from which the bulk of the Gustav claims would likely come.
"The impact on reinsurance costs in the Gulf region is not expected to be significant, but the actual impact will play out over the next few months," A M Best said.
Concerns stemming directly from Gustav, the rating agency suggested, will be exacerbated by the potential for a growing number of category three, or higher, hurricanes reaching landfall, as well as the threats from a number of small storms.
This, added to the high level of catastrophe losses already reported in this year's first half "would likely bring a dose of reality to the competitive property markets and stem further declines in pricing in 2009", A M Best said.
"A M Best expects that reinsures are again recognising that the potential for loss cannot be ignored, and that the competitive confidence of some underwriters will wane," the rating agency said.
business@gleanerjm.com