Hurricane Fiona an earnings event with business interruption uncertainty: AM Best

Hurricane Fiona’s impacts in the Caribbean are expected to be a manageable insurance and perhaps reinsurance loss scenario, but the duration of business interruption related to the storm could drive insured losses higher, AM Best has said.

Five years after hurricane Maria, Puerto Rico has been hit hard by hurricane Fiona’s rainfall and flooding, with damage to infrastructure and interrupted businesses, but overall “insured losses are expected to be manageable,” the rating agency explained.

Still early for any loss estimates, AM Best said that it expects the “storm to be more of an earnings event for the insurance industry as most losses would be caused by flood.”

Business interruption is expected to be the key factor that could take losses higher for the insurance and reinsurance industry.

“The extent of damage that Fiona causes may depend on the duration of business interruption and the cause of loss (flood vs. wind vs. mudslides),” the rating agency said.

Adding that, “AM Best believes that it may take longer for claims adjusters to visit Puerto Rico to assess and estimate the damages and, therefore, we expect these losses to develop over a longer timeframe.”

However, after 2017’s Maria, AM Best notes that many insurers “significantly tightened terms and conditions and lowered sub-limits.”

Because of this, the rating agency said that it anticipates that “business interruption losses associated with Hurricane Fiona will be within risk tolerances.”

Relatively low wind speeds when hurricane Fiona struck, combined with a low uptake of homeowners’ insurance are expected to reduce the insured loss from wind damage to property as well.

While the flooding rains are thought to be the biggest driver of economic loss impacts, much of which will not be insured in homeowners’ policies, although commercial and industrial insurance may cover the flood related effects of Fiona’s impacts.

Summarising, AM Best said, “We believe it is too early to predict the rating impacts from Hurricane Fiona, but at this point, we expect the event to be more of an earnings event for the insurance industry as most losses would be caused by flood, which comes under the NFIP program administered by FEMA. While the impact to the insurance industry may be manageable, we will continue to monitor developments in companies that are concentrated in Puerto Rico, as well as the effectiveness of their reinsurance programs.”