Most Reinsurers Will Experience Losses from Hurricane Florence

An A.M. Best briefing titled First Look: Hurricane Florence said given the size and intensity of Hurricane Florence's winds and the expected resulting storm surge, losses have the potential to be significant. A compounding factor is the increased population and development in the area since Hurricane Hugo in 1989, the last major storm to strike the Carolinas, according to A.M. Best.

Personal lines and small commercial lines insurers are likely to experience the majority of losses; however, should the storm maintain strength inland, it could reach the technology centers of Raleigh, Durham, and Chapel Hill, where commercial exposure is considerable, said the rating agency.

A.M. Best said it does not expect the direct losses to threaten the financial health of most insurers, given the robust nature of the current reinsurance programs most companies have in place. The considerable level of protection is owed to prior years of favorable reinsurance market conditions, which supplied primary insurers with favorable terms and ample top-limit protection, according to A.M. Best.

Additionally, improvements over the last decade in overall risk management capabilities, including exposure analysis, data availability surrounding risk characteristics, and greater granularity in pricing likely will play a role in mitigating losses associated with this event, said the rating agency.

A.M. Best said most reinsurers will experience losses from Hurricane Florence due to the highly syndicated nature of property catastrophe business, and the potential exists for losses to impact alternative capacity on a reinsurance and retrocessional basis as its participation in the sector has increased year over year. However, it is A.M. Best's belief that unless losses are materially outside of expectations or followed up by subsequent large catastrophe losses, it is unlikely to see any meaningful market hardening outside of loss-affected areas.

A complimentary copy of this briefing is available on the A.M. Best website with site login registration.

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