AM Best: Recent market growth to help Puerto Rico insurers absorb Ernesto losses
To date, companies have indicated that losses should remain within reinsurance limits.
Puerto Rico-domiciled insurers are expected to be able to manage losses from Tropical Storm Ernesto, including those from storm surge, power outages and flooding, according to a new AM Best commentary. The eastern and central regions of the island have been the most affected.
The AM Best report, titled “Market Growth in Recent Years to Help Puerto Rico Insurers Absorb Hurricane Ernesto Losses,” indicates that while the insured claims process is still underway, early feedback suggests that property losses will be moderate and within reinsurance limits.
Initial reports from AM Best-rated companies indicate that most damage has resulted from storm surge and flooding, with the latter typically not covered by standard homeowners’ policies.
“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,” said Jason Hopper, associate director of Industry Research and Analytics at AM Best.
Hopper noted that the full impact of business interruption losses remains uncertain due to extensive power outages. Many unaffiliated domestic carriers in Puerto Rico that provide commercial policies and power outage endorsements report that a significant portion of insureds do not purchase this endorsement.
Before hurricanes Maria and Irma, new premium generation in Puerto Rico had been relatively flat. Since then, net premiums written (NPW) have grown at an average rate of nearly 6% annually, except for a slight decline in 2020. Unaffiliated Puerto Rico-domiciled companies now account for about 78% of total NPW, up from 68% in 2018.
Premium ceded to reinsurance companies by unaffiliated Puerto Rico-domiciled insurers has more than doubled since 2017. Although some companies have reduced their exposure due to rising reinsurance costs, renewals for 2023 and 2024 have been less disruptive, with rate increases moderating somewhat.
Overall, insurers indicate that losses should remain within reinsurance limits, AM Best added.
