Fitch Ratings have published their annual hurricane season desk reference report, available to Fitch subscribers here, which looks at the health of the re/insurance sector and its ability to cope with the impending 2012 Atlantic hurricane season. The report suggests that sufficient capacity remains in the re/insurance markets to meet the demand for coverage just prior to the start of the hurricane season. It’s also thought that re/insurers generally have the claims paying ability to deal with a normal hurricane season.
Forecasts for the 2012 Atlantic hurricane season suggest that activity will be either just below or near normal. Fitch notes that despite the high catastrophe losses of 2011 many insurers and reinsurers remain sufficiently capitalised and sufficient underwriting capacity remains available in the markets.
The report notes that reinsurance capacity has been supplemented by insurance-linked securitizations and catastrophe bonds, issuance of which accelerated in 2012 to the highest 1st quarter issuance on record. Our regular readers will be aware that the high issuance continues right up to the start of the hurricane season as deals continue to come to market. Read details of every catastrophe bond here.
The U.S. property re/insurance sector has experienced significant price movement in recent quarters according to Fitch, as the market continues to react to the high catastrophe losses of 2011 and the introduction and continued integration of the new RMS hurricane model. Fitch says that each factor has served as a catalyst for positive pricing movements especially in regions and lines of business with significant catastrophe exposures.
Of course, whether the U.S. re/insurance sector really does have the underwriting capacity and capitalisation for an average hurricane season depends on many factors including the number, severity and location of landfalling storms. It would only take a single Category 3 or stronger hurricane to strike Miami, New York or another major city and the capitalisation and claims paying ability of the sector would be under pressure.