Loss creep from 2017’s hurricane Irma may accelerate over the next few months as the statute of limitations for filing claims approaches in September, rating agency A.M. Best warned today.
Policyholders have a three-year window to file property insurance claims from hurricanes in Florida and for hurricane Irma that will expire in September 2020.
As a result, there is a chance the filing of new claims accelerates over this summer, as policyholders and lawyers look to file as many as they can before the statute runs out.
Already, as we explained recently here, the Florida Office of Insurance Regulation (FLOIR) reports that claims paid by the insurance market due to 2017’s hurricane Irma reached just over $17.44 billion.
As we explained in that article though, there were still more than 4% of claims filed left open earlier this year and we understand further claims are being filed as time runs out to lodge them with insurers.
The prospect of further hurricane Irma loss creep will not be welcomed by any reinsurance firms or ILS funds that remain on the hook for rising claims totals.
A.M. Best explained, “Reinsurers have incurred considerable assumed losses the past several years, owing to elevated hurricane activity and rising claims severity brought on by social inflation. The latter became particularly evident with the materially adverse development through 2019 relating to prior year Hurricanes Irma (2017) and, to a lesser extent, Michael (2018).”
Chris Draghi, senior financial analyst, AM Best, stated, “This loss creep could continue over the next few months, as the three-year statute of limitations to report a Hurricane Irma loss approaches in September.”
As the window to file claims is near to closing, “The market is waiting to see if a rush of new claims will appear,” the rating agency explained.
Floridian insurer’s adverse loss reserve development accelerated in 2018 and 2019 thanks to hurricane Irma, as well as hurricane Michael to a degree.
While the assignment of benefit (AOB) outlook is expected to improve, because of the recent reform act, it is not expected to stem all such claims.
So far, much of the loss creep associated with hurricane Irma has fallen to reinsurance capital, from reinsurers and ILS funds, as well as the FHCF.
While some carriers have exhausted their reinsurance coverage, some others may still pass on at least a share of any further Irma loss creep to reinsurers through structures including quota shares, it’s assumed.
But all of this has been one factor that has helped to shift the balance of power in favour of reinsurers, as evidenced at the recent June 1st renewals in Florida where rates rose around 25% or higher on average.
Hurricane loss creep, as well as social inflation and AOB have all been significant factors in how the renewals panned out, so it will be interesting to see whether any further loss creep as the statute runs down will provide further firming impetus and enable the reinsurers to hold onto gains they’ve made.