Hurricane Beryl Losses Likely Within Reinsurance Sector Risk Appetite: AM Best

While it will take some time to understand the full losses and impacts of Hurricane Beryl, John McGlynn, senior financial analyst at AM Best, predicts that reinsurance industry losses will be within risk tolerance and will not impact industry profits.

At the same time, McGlynn warns that cost pressures from higher reinsurance excess frequencies have prompted some insurers to increase retentions slightly, meaning the impact on Beryl’s profits could be more severe than that of Storms in previous years.

“The biggest impact on 2024 results could be the cost associated with buying reinsurance for a third or fourth event. Companies don’t always buy reinsurance, but a major storm this early in the season could require additional CAT event protection at prices that are likely to be premium prices,” McGlynn said.

In recent years, Caribbean domestic insurers have faced a challenging reinsurance environment as vendors reassess the opportunities they offer in the region.

According to AM Best, reinsurers see their presence in the Caribbean as an opportunity rather than an obligation.

“In 2023, the combination of higher unmodeled event frequencies in the US and Europe, high interest rates providing alternative investment opportunities and, for European reinsurers, a strong dollar, led reinsurers to reduce the capacity they offered in the Caribbean. Changes to CAT modelling in some cases resulted in higher exposures than in previous years, which only exacerbated the reduction in capacity,” explains McGlynn.

As a result, some major carriers have been forced to discontinue serving customers due to constraints in reinsurance capacity.

AM Best notes that while contract renewals were much more orderly in 2024 and capacity constraints were less severe, prices were still high.

“Many local carriers were counting on profit commissions to support 2024-25 earnings and help offset higher CAT XOL costs, which could be impacted by losses from Beryl,” McGlynn added.

Insurable risk in the Caribbean has increased dramatically over the past decade due to additional real estate development, increased car ownership and inflation. However, the total value of insured property has not increased proportionally to the increase in exposure in many jurisdictions, indicating that many property owners are underinsured or uninsured, McGlynn says.

In addition, severe storm losses could impact the physical construction of new tourism facilities in affected areas and limit insurance coverage required to implement additional infrastructure investments necessary to support tourism development.

“Due to these and other factors, the performance of Caribbean insurers could come under pressure from Beryl in the near term. AM Best will continue to monitor the situation and have ongoing discussions with insurers on the impact,” McGlynn said.

Hurricane Beryl intensified from a Category 1 storm to a Category 4 storm in less than 10 hours, according to meteorologists, which is reportedly the fastest intensification recorded before September. The storm is also the first Category 4 storm to ever form in the Atlantic in June and was the earliest hurricane to develop into a Category 5.