[October 20, 2014]

Fitch: 2014 Hurricanes Giving No Lift to Soft Reinsurance Market

Fitch Ratings expects a limited amount of industry insured losses from Hurricane Gonzalo and Hurricane Ana, which threatened to produce extensive damage to Bermuda and Hawaii, respectively, but ultimately spared the islands from a significant hit. While these events will add to insured losses for the year, overall industry catastrophe losses remain below average thus far in 2014. As such, Fitch expects soft market pricing conditions in property catastrophe reinsurance to continue at the January 2015 renewals and beyond.

The absence of large losses since 2012, abundant capacity levels and sluggish demand from reinsurance buyers have resulted in a softening market for reinsurers, characterized by falling prices and, less visibly, weakening terms and conditions. This deteriorating reinsurance market environment led Fitch to assign a negative fundamental sector outlook to global reinsurance in January 2014. Fitch estimates that it would likely take a major industry loss event nearing $100 billion to potentially result in a broad hardening of property and property catastrophe market prices.

Hurricane Gonzalo made landfall in Bermuda on Friday, Oct. 17, as a strong Category 2 hurricane. The very large and calm hurricane eye passed directly over the island, reducing the overall wind impact and mitigating the damage. Industry losses from Hurricane Gonzalo will be less than the last significant storm to affect Bermuda, Hurricane Fabian, which passed about 14 miles west of the island as a Category 3 hurricane in September 2003 and caused about $300 million (in 2003 dollars) of insured losses.

Bermuda's extensive hurricane preparedness and strict enforcement of its building codes, which are designed to withstand sustained wind speeds up to 110 mph and gusts up to 150 mph, favorably helps the island to limit both its economic losses and loss of life compared with other hurricane-prone nations that are less developed. In addition, Bermuda-based (re)insurers generally have contingency plans in place to shift operations to other jurisdictions, where they often also have a considerable presence, so as to minimize overall disruptions.

Separately, Hurricane Ana intensified to become a Category 1 hurricane on Friday, October 17, before passing well southwest of the Hawaiian Islands over the weekend. The storm brought considerable rainfall to the island chain; however, material insured losses are not expected to result from the storm given its moderate intensity and final track away from the islands. The last hurricane event to significantly affect Hawaii came in September 1992, when Hurricane Iniki made landfall as a Category 4 storm.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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