September 2, 2022
According to AM Best’s market segment report, Caribbean insurers continue to navigate economic headwinds and market volatility while remaining highly vulnerable to several other risks. Climate, reinsurance, and cyber in particular.
Despite the low level of claims activity in 2021 and thus far in 2022, reinsurance pricing continues to reflect increased hardening as insurers and reinsurers are feeling the effects of inflation, says the report.
Construction industry costs such as labour, lumber, and other raw materials have increased considerably and are reflected in higher loss costs for insurers and reinsurers.
Alongside this, Ricardo Longchallon, senior financial analyst, Am Best, commented, “The growing frequency and severity of global catastrophic events have forced reinsurers to adopt a more circumspect approach to climate risk.”
“In some instances, this has resulted in double jeopardy for Caribbean insurers in the form of higher reinsurance rates, in some cases more than 15%, and less capacity.”
A hardening casualty market and changing perspectives on property risk have caused reinsurers to allocate more capital to casualty risks and shy away from property exposures, this provokes a challenge for the Caribbean insurance market, suggests AM Best.
The pandemic tested the risk management and capabilities of both P/C and L/H insurers. Business continuity and growing cyber risk threats came to the fore as companies adjusted to the reality of working remotely.
Amidst this, climate risk adds an additional layer of uncertainty as it remains the biggest threat to the Caribbean, says AM Best.
Hurricanes Irma and Maria in 2017 and Hurricane Dorian in 2019, which resulted in significant economic losses across the Caribbean, have impacted risk appetites and pricing for reinsurance across the region.
Consolidated gross premiums among rated Caribbean property/casualty insurers rose by 10.6% in 2021, reflecting continued price firming in certain territories, while net premiums rose by 5.3%, despite higher cessions by some companies.
The overall combined ratio deteriorated slightly, to 95.3 from 94.8 in 2020, which had improved by 4.1 percentage points over 2019.
Consolidated surplus increased by 3.2% over 2020 to USD 853.9 billion, reflecting the group’s favourable earnings in 2021.
Caribbean life/health companies experienced a slight improvement in top-line growth after emerging from the pandemic-related disruptions, as total revenue was up slightly.
Life and health premiums stabilized as insurers no longer had to provide premium relief to policyholders as economic conditions improved, stay-at-home restrictions abated, and tourism reversed from its static state.