AM Best believes that Puerto Rico-based insurers will be able to absorb the losses caused by Hurricane Ernesto. Property damage is expected to be moderate and within reinsurance limits.
National Oceanic and Atmospheric Administration via AP
Based on initial discussions with the rated companies, the rating agency found that the damage caused by Hurricane Ernesto was largely due to storm surges and flooding, the latter of which are not covered by conventional building insurance.
AM Best continued: “Due to the numerous infrastructure problems on the island, the processing of damage reports will take longer. Power outages in large parts of the island as well as supply and transport problems further complicate the situation.
“Nevertheless, the insured loss estimates from Hurricane Ernesto do not appear to come anywhere close to exceeding the catastrophe reinsurance limits of most insurers. The loss estimates will likely remain comfortably within the coverage limits and risk tolerance of most companies.”
Meanwhile, the rating agency noted that significant property damage is expected, but company-specific estimates appear to be at the lower end of model-based projections.
AM Best also stated that the final extent of losses from business interruptions (power outages) was “something of an unknown.”
Jason Hopper, deputy director of industry research and analysis at AM Best, said: “Given the island’s numerous infrastructure problems and the fact that large parts of the island are without power, claims will take longer to process. Supply and transportation issues further complicate the situation.”
AM Best also highlighted that the capital position of Puerto Rico-based companies was strengthened by positive operating profitability after declines in 2017 and 2018.
The rating agency added: “The aggregate capital and profits of these companies have reached a ten-year high over the past three years as lower losses from weather-related events have led to improved profitability.”
“The capital positions of smaller companies are more vulnerable, but we expect insured losses to have a greater impact on earnings than on capital due to the level of reinsurance support that companies have secured.”
