Capital market to pay share of $25bn+ Bermudian loss from hurricanes

The Bermuda re/insurance market is expected to face a bill of somewhere around $25 billion from recent hurricane events, with the capital markets set to pay a considerable share, through the islands alternative capital, collateralized reinsurance and ILS fund vehicles.

The Association of Bermuda Insurers & Reinsurers (ABIR) estimates that of the roughly $100 billion of catastrophe losses expected from recent events including hurricanes Harvey, Irma, Maria and the Mexico earthquakes, Bermudian insurers and reinsurers will pay for around a quarter or more.

With Bermuda’s market perhaps the largest provider of property catastrophe reinsurance in the world, particularly in peak zones like the U.S. hurricane exposed regions, the bill will be concentrated on its reinsurers and also within its ILS industry.

“Bermuda’s global insurers and reinsurers first and foremost express their sympathy to those suffering from the loss of life, property, food and water from the recent storms,” commented Kevin O’Donnell, ABIR Chair and President and Chief Executive Officer of RenaissanceRe Holdings Ltd. “At this time, we are helping in the best way we can—by forwarding billions of dollars to help begin and sustain recovery in Texas, Florida, Puerto Rico, the US Virgin Islands and the rest of the affected Caribbean and Southeast US.”

“Going forward, we are committed to helping our clients and their communities rebuild more resiliently, and supporting continued innovation to help close the insurance protection gap,” O’Donnell also said. “By diversifying the financial risks of these disasters to a willing global private market, we can best reduce financial burdens on exposed communities, taxpayers and policyholders.”

The Bermuda market’s roughly $25 billion bill will be paid for by companies from across its insurance and reinsurance sector, including the islands commercial insurers and reinsurers, captive and self-insurance companies, catastrophe-focused managing general agents (MGAs), and the alternative capital risk funds and pools, the ABIR said.

The capital markets are set to pay a significant share of this, with the large ILS fund managers located on the island all exposed and numerous collateralized reinsurance vehicles or sidecars of the reinsurers also set to pay their share of claims.

As a result, institutional investors in ILS vehicles will pay significant claims to support the reconstruction and recovery efforts of regions impacted by recent natural disasters.

“The value reinsurers provide is three-fold,” Brad Kading, ABIR’s President and Executive Director explained. “First, advancing cash for liquidity so insurance clients can pay consumer claims; second, transferring risk around the world and diversifying it, so the cost of hurricanes is not solely paid by policyholders and taxpayers in the affected area; and, third, by providing balance-sheet protection so while insurers are liquidating assets to pay claims, additional funds provided by reinsurers allow them to continue selling new insurance contracts daily and still meet regulatory capital targets. That helps consumers get repairs made faster and helps local economies to recover, rebuild and return to productivity.”

The capital markets is providing this same value, while also supporting the insurers and reinsurers through provision of efficient capital.