Puerto Rico insurers should be able to navigate Ernesto losses: AM Best

AM Best expects that Puerto Rico-domiciled insurers should be able to navigate losses caused by Hurricane Ernesto, with property losses anticipated to be moderate and contained within reinsurance limits.

National Oceanic and Atmospheric Administration via AP

Based on initial discussions with its rated companies, the rating agency has noted that most of the damage caused by Hurricane Ernesto came from storm surge and flooding, the latter of which is not covered by standard homeowners policies.

AM Best continued, “Given the island’s many infrastructure issues, claims processing will take longer, a situation further complicated by power outages throughout much of the island and by supply and transportation problems.

“Nevertheless, the insured loss estimates for Hurricane Ernesto do not appear to be close to breaching the catastrophe reinsurance limits of most insurers. Loss estimates are likely to remain comfortably within most companies’ reinsurance coverage limits and risk tolerance.”

Meanwhile, the rating agency observed that property losses will likely be notable, but company-specific estimates seem to be on the lower side of modelled projections.

AM Best also stated that the ultimate magnitude of business interruption (power outage) losses is “something of a wild card”.

Jason Hopper, associate director, Industry Research and Analytics, AM Best, said, “Given the island’s many infrastructure issues and much of the island without power, claims processing will take longer, a situation further complicated by supply and transportation problems.”

AM Best additionally highlighted the fact that favourable operating profitability has bolstered the capital position of Puerto Rico-domiciled companies after declines in 2017 and 2018.

The rating agency continued, “Aggregated capital and surplus for these companies have been at ten-year highs for the past three years, as lower losses from weather-related events have led to better profitability.

“The capital positions of smaller companies are more vulnerable, but we expect that insured losses will have a bigger impact on earnings rather than on capital, due to the level of reinsurance support companies have secured.”

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