While insurers domiciled in Puerto Rico have maintained underwriting discipline and demonstrated favorable operating results and solid balance sheet strength, the competitive operating environment and economic challenges there will hinder their ability to grow over the near to medium term, according to a new A.M. Best briefing.
The recent briefing, titled “Puerto Rico’s debt crisis remains a challenge for domestic insurers,” said the Puerto Rico insurance market remains very competitive given the number of carriers operating within a defined market environment.
Even though Puerto Rico domiciled companies have stated that they have the ability and intent to hold Puerto Rico bonds, they have incurred significant capital losses as evidenced in the current depressed valuations.
Since 2013, companies have reported significant realized and unrealized capital losses of which the majority of these losses were generated by Puerto Rico bonds.
Moreover, property/casualty insurers reported approximately $170 million in realized and unrealized losses from 2013 through 2015, while life/health insurers reported nearly $44 million in losses over the same period.
When viewed as a percentage of surplus, most companies have been able to effectively absorb these losses as a result of generally favorable underwriting results and, although declining, investment income on the remainder of their portfolios.
Additionally, some of the companies with high losses relative to capital and surplus are part of larger organizations that may be able to provide financial support, if needed.
In response to concerns over the declining valuations, Puerto Rico domiciled companies have worked to improve the quality of their investments over the past three years, as many of the carriers have invested in U.S. municipal bonds, as well as special revenue and agency bonds. In some cases, the remaining Puerto Rico securities are held as a function of regulatory requirements.
A.M. Best will continue to monitor events in the Puerto Rico market and their potential impact on rated entities, the New Jersey-based agency said.