International ratings agency, A.M. Best, has highlighted the increased use of retrocessional reinsurance protection amongst global reinsurers, including from the capital markets, which could limit some exposure to hurricane Irma as it maintains its track towards Florida, U.S.
In an industry note on the potential impact of major hurricane Harvey, which is expected to hit Florida and possibly the Miami-Dade area early Sunday morning, A.M. Best notes that some players that operate in the region have been utilising retrocession and also disciplined underwriting to reduce exposures.
According to A.M. Best, reinsurance companies that specialise in the property catastrophe reinsurance sector, or that are more focused on the U.S. and have kept their appetite for Florida and Caribbean property cat risks, will likely be more “disproportionately impacted by these losses.”
“However, over the past few years, all reinsurers have started pulling back capacity or are increasingly using retrocessional protection—much of it from capital market vehicles—to reduce exposure, given that pricing conditions in the property catastrophe market have deteriorated,” explains A.M. Best.
If more losses are passed to retrocession, the ILS and capital markets will take a significant share given the proliferation of sidecars and retro specialists backed by third-party investors.
Only time will tell what impact hurricane Irma has on the insurance and reinsurance market, and also the interests of capital markets investors in the insurance-linked securities (ILS) space, that participate in the Florida market via retrocession, collateralised reinsurance and catastrophe bond transactions.
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