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15 September 2017
Oldwick
Reporter Jenna Lomax

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Hurricane Irma to potentially change use of alternative capital instruments

A potential impact of Hurricane Irma on Florida’s property casualty market is the change in behaviour of traditional reinsurers and the use of alternative capital instruments such as cat bonds, collateralised reinsurance programmes, sidecar vehicles and insurance-linked securities, according to an A.M. Best report.

In the ‘Best’s Briefing’, it explained that the current catastrophe bond market exists primarily to provide reinsurance for catastrophic events like Hurricane Irma.

Outstanding bonds amounted to approximately $24.7 billion as of 30 June, of which approximately $12.5 billion covers US-named storm or wind peril as one of the covered perils that could impact Florida.

A.M. Best suggested that national insurance writers with significant Florida property exposures and Florida-domiciled property insurers could suffer “significant losses”, depending on the severity of the losses caused by Hurricane Irma.

Outstanding cat bonds sponsored by these entities could trigger after retentions and other traditional reinsurance covers have eroded.

According to A.M. Best, insured losses exceeding $75 billion would alter the pricing dynamics in the Florida property catastrophe reinsurance market; however, working out the total amount of losses on outstanding catastrophe could “take some time.”

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