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Bermuda Re/Insurers To Pay 25 Percent of Harvey, Irma, and Maria Loss

Hurricanes Maria and Jose 480x377
October 20, 2017

Bermuda's global insurers and reinsurers are in the progress of paying claims on last month's record-setting Hurricanes Harvey, Irma, and Maria. According to initial estimates from the Association of Bermuda Insurers and Reinsurers (ABIR), the island's insurance market may absorb 25 percent or more of the approximately $100 billion in aggregate insured-loss claims from the three storm events.

ABIR estimates are based on historical experience, regulatory stress tests, and publicly announced preliminary estimates by listed companies. 

Shortly after the storms ravaged regions across the Caribbean and United States, Bermuda reinsurers began wiring hundreds of millions of dollars to primary insurance company accounts impacted by the disasters, the association said.

Bermuda-based commercial insurers represent the second-largest insurance hub outside London and are the leading providers of catastrophe reinsurance in the world.

The Bermuda share of hurricane losses will be aggregated from business segments including commercial insurers and reinsurers, captive or self-insurance companies, catastrophe-focused managing general agents, and alternative capital risk funds and pools.

Kevin O'Donnell, ABIR chair and president and CEO of RenaissanceRe Holdings Ltd., said, "By diversifying the financial risks of these disasters to a willing global private market, we can best reduce financial burdens on exposed communities, taxpayers and policyholders."

"The value reinsurers provide is three-fold," explained Brad Kading, ABIR's president and executive director. "First, advancing cash for liquidity so insurance clients can pay consumer claims; second, transferring risk around the world and diversifying it, so the cost of hurricanes is not solely paid by policyholders and taxpayers in the affected area; and, third, by providing balance-sheet protection so while insurers are liquidating assets to pay claims, additional funds provided by reinsurers allow them to continue selling new insurance contracts daily and still meet regulatory capital targets. That helps consumers get repairs made faster and helps local economies to recover, rebuild and return to productivity."

"To successfully underwrite insurance for property exposed to natural and man-made disasters, global reinsurers pool risk to achieve a diversified portfolio," he said. "Risk is accumulated from potential events around the world, and since such loss events are uncorrelated, global insurance groups can achieve and share with customers the benefits of diversification."

Economists estimate an additional $70 billion in capital (40 percent or more) would be needed to underwrite catastrophe exposures that global reinsurers currently manage if they were unable to diversify the risk by pooling onto a "flagship" balance sheet, according to ABIR.

With operating subsidiaries in the United States and Europe, and business in more than 150 countries, ABIR's member companies wrote combined global gross written premium of $92 billion on a capital base of $124 billion at year-end 2016. They also provide more than a third of the capacity for Lloyd's of London.

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