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Fitch: Hurricane Maria Will Be a Capital Event for Some Re/Insurers

Hurricanes Maria and Jose 480x377
September 29, 2017

Following the devastation caused by Hurricane Maria, 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, according to Fitch Ratings. Losses on this scale, which at the upper end would be the highest on record in a single year, could weaken capital at some re/insurers and increase the risk of rating downgrades.

Upper-end loss estimates for Hurricane Maria alone are $85 billion, according to figures published by AIR Worldwide on Monday. This comes on top of $50 billion in upper-end expected losses from Hurricane Irma, $25 billion from Hurricane Harvey, $3 billion from Mexico's earthquakes, and over $20 billion in catastrophic first-half losses from various other events.

These estimates compare to the total statutory capital of the US property and 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.

Given the magnitude of the Maria-estimated losses, Fitch now believe 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.

As a result, Fitch believe there is a heightened risk that combined loss concentrations to these events for several re/insurers will result in a capital decline for the full 2017 year. In some cases, this could result in ratings downgrades if not addressed through capital raises or other mitigating actions.

Fitch said that the greatest threat to ratings will 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 by Fitch, 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 a significant risk, they would expect to put such companies' ratings on ratings watch until more definitive information is available.

Direct writers with the largest 2016 non-life insurance market shares in Puerto Rico include Universal Insurance Group, subsidiaries of Mapfre, Cooperativa de Seguros Multiples Group, Triple S Group, and Caribbean Alliance Insurance Co., based on filings with the National Association of Insurance Commissioners. Fitch believes many global reinsurers participate in the Puerto Rican market.

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