Hurricane Dorian, fires to cause double-digit insurance rate hikes
Moody’s estimates insurance rates will increase by approximately 15% as a result of recent hurricanes and wildfires.
Moody’s Investor Services estimates insurance rates will increase by approximately 15% as a result of Hurricane Dorian and catastrophic wildfires, Bloomberg reported.
Hurricane Dorian continues its path up the east coast after devastating the Bahamas over Labor Day weekend, destroying about 13,000 homes.
At the same time, wildfires have been burning thousands of acres in various regions around the U.S., including the Gun Range Fire in Utah last week, and California’s Tenaja Fire, which prompted evacuations Wednesday in Riverside County as the brush fire grew to 1,400 acres.
According to Bloomberg, Munich Re, Swiss Re, and smaller reinsurers will begin negotiating new rates with clients within the next few weeks, with the average increase being in the “mid-teens on the loss-affected lines,” said Antonello Aquino, Moody’s associate managing director for EMEA insurance.
Based on a recent Moody’s survey of reinsurance buyers, underwriting profitability is still insufficient to support earnings resilience in an above-average catastrophe year, resulting in higher prices for next year. Furthermore, the frequency and severity of natural disasters make it challenging for reinsurers to predict such events, and model and price rates appropriately.
Since 2017’s active hurricane season, U.S. property insurance rates have steadily increased. Now with Hurricane Dorian’s impact, property insurance in the U.S. and Caribbean, alone, could see a single-digit percentage increase.
“Reinsurers’ capitalization is strong, with a significant cushion above regulatory and risk-based capital requirements, and prices have climbed, relieving some pressure on profitability,” Brandan Holmes, vice president and senior credit officer at Moody’s, said in a statement. “Still, low interest rates and declining reserve releases will pressure earnings, while climate change creates increased uncertainty. Increasing dependence on alternative capital-backed retrocession also poses a challenge to some reinsurers.”
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