The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian insurers are warning there is “nothing that will ease the pressure” on soaring catastrophe coverage costs as they nervously await the total damages and insured losses from Hurricane Idalia’s strike on Florida.

Timothy Ingraham, Summit Insurance Company’s managing director, told Tribune Business that reinsurance costs and availability are “about as tight as I’ve seen it” in almost 30 years since Hurricane Andrew’s aftermath in the mid-1990s.

Pointing out that these pressures stem not just from hurricane claims payouts, but all manner of disasters such as wildfires, earthquakes and floods, he explained that total reinsurance industry catastrophe-related losses during the 2023 first half are “on pace” to match the average $120bn that the sector has incurred on an annual basis for the past five to six years.

As a result, Mr Ingraham told this newspaper that premium prices paid by Bahamian homeowners and businesses to insure their properties against all perils are unlikely to ease when renewals are issued for 2024. And, given that it is still peak Atlantic hurricane season, there may be renewed pressure for further increases should storms hit this nation or elsewhere in the region before year-end.

Risk analysts at UBS, the Swiss bank, last week estimated that average insured losses from Idalia’s strike on Florida’s west coast could reach up to $9.36bn, with a 50 percent chance losses could hit $4.05bn. However, catastrophe risk modeller, Karen Clark & Company (KCC), has pegged privately insured losses from Hurricane Idalia at close to $2.2bn, and it will still take several weeks to develop final figures for this and total damages.

As a result, Bahamian property and casualty underwriters must wait to determine what the precise fall-out will be for this market given that global reinsurers tend to lump it with Florida when they do their risk modelling and treaty pricing. “It’s still too early to tell,” Mr Ingraham confirmed. “The initial estimate I’ve seen are coming in around $10bn for that loss [Idalia].

“By comparison, Ian was $50bn-$60bn. It’s obviously not as big a loss as Ian, so we don’t expect to see the same impact as Ian.” However, Mr Ingraham explained that reinsurers are assessing a much bigger catastrophe loss situation than just hurricanes.

“For the first half of this year, reinsurance catastrophe losses are on pace to equal the catastrophe losses they’ve had for the last five to six years,” the Summit chief explained. “For the last five to six years, they’ve been paying out on average $120bn in catastrophe losses.

“The pace for the five to six years prior to that was $80bn in catastrophe losses. This year, at the mid-point, it looked on pace to sustain the industry paying out what it’s been seeing for the last five to six years.” That represents a 50 percent average annual increase compared to the previous five years and, based on the 2023 first half, Mr Ingraham said there is nothing that would soften Bahamian property and casualty rates in the near term.

“At the very least we don’t expect there to be any change compared to what we are seeing now, and compared to the last renewal, but it depends on what happens over the rest of this year,” he told Tribune Business. “This region, thus far, has not seen a lot, but it all comes from the same reinsurance catastrophe loss pot. From what we’ve seen in the first half, there’s nothing to ease the pressure, so to speak.

“We still find this a difficult reinsurance market. It’s very likely there will be no reduction in costs depending on what happens for the rest of the year. Reinsurers will sell capacity at the same price or increase it. There’s no short-term easy fox to it. If we saw more capacity come into the market, that would help to relieve the pressure a bit. The only real fix is lower long-term catastrophe claims payouts. That’s not just for us, but other places.”

Given the effects of climate change, with more frequent and severe hurricanes, achieving such an outcome could be extremely difficult. Mr Ingraham told this newspaper that the last time current reinsurance market conditions were endured, with reduced coverage capacity and soaring costs, was in Hurricane Andrew’s aftermath in the mid-1990s. Property insurance premiums, calculated as a percentage of the home’s replacement value, rose five-fold after the Category Five storm.

“This is about as tight as I’ve seen it,” he conceded. “The last time we saw it was in Andrew’s aftermath. Prior to Hurricane Andrew we had an average rate in this market of 0.3 percent. Three years afterwards, it had gone to 1.5 percent, the average rate to insure a building for catastrophe. We haven’t seen anything like that increase since, and I don’t think we could bear something like that.”

Bahamian property and casualty underwriters must acquire huge amounts of reinsurance annually because their relatively thin capital bases mean they cannot cover the multi-billion dollar assets at risk in this nation, thus making them dependent on the cost and availability of such global support.

The large, and more frequent, payouts associated with hurricanes in the Caribbean means some reinsurers now either have a reduced appetite for underwriting risks in this region or have withdrawn from it altogether. Hence the reduction of capacity and increase in pricing, which has been passed on to Bahamian consumers.

Insurance Company of The Bahamas (ICB), in its just released 2022 annual report, confirmed the drop in reinsurance availability has already pushed property insurance costs for Bahamian homeowners and businesses to the highest levels it has seen in its 26-year history. Mr Ingraham said interest rate hikes in advanced economies have also enticed risk-averse investors into switching money from reinsurance to higher-earning bank deposits.

Meanwhile Anton Saunders, RoyalStar Assurance’s managing director, told Tribune Business that Idalia’s impact will be contained if losses are below $5bn and there are no other major hurricane events in 2023. “I think everyone in the Caribbean is watching closely what the fall-out is going to be from the latest storm and projections on what it’s going to cost,” he said.

“If it’s going to be below $5bn for the whole storm I don’t think it will create too big a change in reinsurance market appetite. If it’s the only one, and everyone will be crossing everything they have, if it is below $5bn I think the market can sustain that and there shouldn’t be any big changes.

“But if it goes beyond that, and there are one or two others ones, the concerns will be multiplied. If there’s more landfalls that happen, and it’s severe, I’d be more concerned, but one-offs like this I don’t think the reinsurance market will have any difficulty dealing with that,” Mr Saunders added.

“I don’t see any fall-out from this one if it’s confined at $5bn or less. They’ve already priced for that. If this event is in isolation, and we have no more events, I don’t see any significant fall-out from that.”