Hurricane Francine losses manageable but primary insurers to bear costs: AM Best

A new report from AM Best has revealed that losses resulting from Hurricane Francine will likely be manageable in aggregate, though will be borne by primary insurers given a shift toward higher reinsurance attachments.

Hurricane Francine made landfall in Louisiana after a lull in what was originally forecast as an active Atlantic hurricane season, AM Best explained.

“The landfall location (sparsely populated with a limited economic impact) and the nature of the peril (more of a flood event than a wind event) implies that, even for primary insurers, the losses may be manageable in aggregate,” the rating agency added.

Jason Hopper, Associate Director, AM Best, continued, “However, there could be pockets of concentrations in which insurers with higher dependence on reinsurance could see greater impacts, which will take time to determine.”

Half the 10 costliest hurricanes to impact the U.S. based on insured losses have occurred since 2017; eight of them have impacted Florida, Texas, and Louisiana.

AM Best noted that a trend toward the aforementioned higher attachments was part of reinsurers’ de-risking measures that followed Hurricane Ian in 2022.

The rating agency has identified 72 companies whose total direct property catastrophe risk premium written in the five Gulf Coast states—Texas, Louisiana, Mississippi, Alabama, and Florida—equates to more than two-thirds of their total direct premium.

These companies, described as Gulf Coast property catastrophe specialists, have been capturing a greater share of Gulf Coast property catastrophe net premium written over the past five years, accounting for about 20% of this regional market.

The level of premium ceded to reinsurers by this group has reportedly more than doubled since 2020. Meanwhile, around 27% of the premiums ceded by the Gulf Coast property specialists is ceded to reinsurers domiciled in Bermuda, of which more than half goes to reinsurers that are not rated by AM Best.

“As reinsurance becomes more expensive in the Gulf Coast region, managing counterparty risk remains an important component of a comprehensive enterprise risk management framework,” the rating agency concluded.

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