Bermuda market companies are likely to pay out at least $25 billion to cover insured losses resulting from hurricanes Harvey, Irma and Maria.
That is the preliminary estimate of the Association of Bermuda Insurers and Reinsurers, which said today that Bermuda companies had already started wiring hundreds of millions of dollars to insurers covering the impacted areas.
The three storms caused massive devastation across the Caribbean and areas of the southern US, with preliminary estimates showing around $100 billion of aggregate insured losses.
Already, several companies have issued preliminary estimates of catastrophe losses from the three storms, as well as other disasters including two earthquakes that struck Mexico, also in the third quarter.
Among those are RenaissanceRe, which estimated third-quarter catastrophe losses of $625 million and PartnerRe $475 million, while Validus Holdings expects to see losses of more than $400 million.
Bermudian-based commercial carriers represent the second-largest insurance hub outside London and are the leading providers of catastrophe reinsurance in the world, according to Abir.
“Bermuda’s global insurers and reinsurers first and foremost express their sympathy to those suffering from the loss of life, property, food and water from the recent storms,” said Kevin O’Donnell, Abir chairman and chief executive officer of RenaissanceRe Holdings Ltd.
“At this time, we are helping in the best way we can — by forwarding billions of dollars to help begin and sustain recovery in Texas, Florida, Puerto Rico, the US Virgin Islands and the rest of the affected Caribbean and Southeast US.”
“Going forward, we are committed to helping our clients and their communities rebuild more resiliently, and supporting continued innovation to help close the insurance protection gap.
“By diversifying the financial risks of these disasters to a willing global private market, we can best reduce financial burdens on exposed communities, taxpayers and policyholders.”
Shortly after the storms ravaged regions across the Caribbean and US, Bermuda reinsurers began wiring hundreds of millions of dollars to primary insurance company accounts impacted by the disasters, the association said.
The Bermuda share of hurricane losses will be aggregated from business segments including commercial insurers and reinsurers; captive, or self-insurance companies; catastrophe-focused managing general agents (MGAs); and alternative capital risk funds and pools.
Based on historical experience, regulatory stress tests, and publicly announced preliminary estimates by listed companies, Abir estimates the island’s insurance market may absorb 25 per cent or more of insured-loss claims. Preliminary aggregated loss estimates put the total at approximately $100 billion for the three storms.
Bermuda reinsurers, including ABIR members, began reporting estimates of net insured losses last week.
“The value reinsurers provide is threefold,” said Brad Kading, Abir’s president.
“First, advancing cash for liquidity so insurance clients can pay consumer claims; second, transferring risk around the world and diversifying it, so the cost of hurricanes is not solely paid by policyholders and taxpayers in the affected area; and, third, by providing balance-sheet protection so while insurers are liquidating assets to pay claims, additional funds provided by reinsurers allow them to continue selling new insurance contracts daily and still meet regulatory capital targets.
“That helps consumers get repairs made faster and helps local economies to recover, rebuild and return to productivity.”
Bermuda’s global insurance groups hold market-leading positions and expertise in business segments ranging from property insurance and catastrophe reinsurance, to energy and excess liability. Since 2000, the market has contributed more than $50 billion towards US catastrophe losses, including 10 per cent of the World Trade Centre attack claims and a third of liabilities incurred during 2005’s Hurricane Katrina, the deadliest and costliest hurricane recorded to date, according to the National Hurricane Centre, and hurricanes Rita and Wilma.
Bermuda’s reinsurance market fulfills a critical role internationally in the wake of the most devastating and costly natural disasters, said Mr Kading.
“To successfully underwrite insurance for property exposed to natural and man-made disasters, global reinsurers pool risk to achieve a diversified portfolio,” he said. “Risk is accumulated from potential events around the world, and since such loss events are uncorrelated, global insurance groups can achieve and share with customers the benefits of diversification.”
Economists estimate an additional $70 billion in capital (40 per cent more) would be needed to underwrite catastrophe exposures that global reinsurers currently manage if they were unable to diversify the risk by pooling onto a “flagship” balance sheet, according to Abir.
With operating subsidiaries in the United States and Europe, and business in more than 150 countries, ABIR’s member companies wrote combined global gross written premium of $92 billion on a capital base of $124 billion at year-end 2016.
They also provide more than a third of the capacity for Lloyd’s of London, and employ tens of thousands of people around the world, including more than 26,000 employees in the US, over 1,600 in Bermuda, more than 10,000 in Europe, and nearly 8,100 in Asia and Oceania. Ten large Bermuda reinsurers have $12 billion invested in US subsidiaries, Abir said.
Today, 13 of the top 40 global reinsurers are based in Bermuda.