Reinsurers to only feel “minimal” impact from hurricane Idalia: AM Best

The reinsurance sector will likely only feel a “minimal” impact from hurricane Idalia, as its losses are destined to be largely retained by primary insurers, AM Best has said.

The rating agency actually said that, “Insured losses in Florida related to Hurricane Idalia are unlikely to surpass those from Hurricane Ian last year.”

Given the industry loss estimates now emerging, it actually seems that hurricane Idalia’s insurance industry impact may be less than one-tenth of hurricane Ian’s.

Reinsurers have been pulling-back and moderating their exposure to Florida hurricanes in recent years, the rating agency explained.

“Because of the significant losses in Florida in recent years, some reinsurers have been re-evaluating their aggregate exposures and capital allocation targets there,” Jason Hopper, associate director, AM Best said. “The losses paid by U.S. reinsurers as a share of premiums assumed from Florida personal property specialists continued to rise in 2022.”

While the rating agency explained in a report that, “Given hardening reinsurance rates and increased retentions, the effect on reinsurers will be minimal.”

AM Best does not expect a significant recovery in appetite for Florida property risks, among the reinsurance industry.

“Reinsurers are likely to remain selective about the risks they reinsure, further challenging the Florida property writers,” AM Best explained.

Adding that, “Still, Florida personal property specialist exposure represents less than 5% of the vast majority of each reinsurer’s total portfolio.”

Because of this, the Florida specialist property insurers have been using more captive reinsurer vehicles to ceded risk to in recent years.

On which AM Best said, “The use of captives may be attributed to insurers trying to fill in gaps with reinsurance protection in the traditional reinsurance market.”

If the insurance industry loss ends up in the low single-digit billions of dollars, as estimates such as KCC’s $2.2 billion are now beginning to suggest, the reinsured portion would be expected to be very minimal, with some excess-of-loss reinsurance towers unlikely to attach in many cases.