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AM Best: Market Impact of Hurricane Sandy May Be Limited

Source: AM Best

Posted on 30 Nov 2012 by Neilson

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AM BestInsured losses of $20 billion or possibly more from Hurricane Sandy are unlikely to significantly affect the global reinsurance market, although it should translate into dampened earnings for some insurers and reinsurers, A.M. Best reinsurance analysts said at the company's Bermuda Market Briefing, held Nov. 29 in Hamilton, Bermuda.

Primary insurance companies are expected to bear the brunt of the losses. For reinsurers and for Bermuda market companies that have primary and reinsurance exposure, losses appear to be manageable and likely will result in an earnings event.

"Even where we stand now, a $25 billion industry loss, compared to the $100 billion in losses in 2011, is not going to be a meaningful event from a capital perspective," Robert DeRose, an A.M. Best vice president and veteran reinsurance analyst, said. "The industry will almost certainly generate an underwriting profit for the year."

"So far there has not been a rating action from A.M. Best totally due to Sandy, "A.M. Best Group Vice President John Andre said. Both Andre and DeRose cautioned that insurers that have more concentrated regional exposures could ultimately be affected but those developments might take time to emerge.

Even if current loss estimates creep upward, given the strong performance through the first nine months of 2012, the full year’s underwriting performance should remain positive for most market participants, analysts said in a new report on the Bermuda market. Supply and demand for reinsurance capacity are not expected to change; therefore, no widespread pricing “turn” is expected to take place at the Jan. 1, 2013 renewals.

The application of hurricane deductibles has been discussed widely, but regulators in many states have taken the position that deductibles were not triggered, given the specifics of Sandy.

Sandy made landfall on the evening of Oct. 29 just southwest of Atlantic City, N.J., as a post-tropical cyclone. The storm had a diameter nearly twice the size of 2005's Hurricane Katrina, but was only a Category 1 hurricane up to a few hours before landfall.