AM Best: Climate, Reinsurance and Cyber Remain High in the Caribbean Risk Landscape
The Caribbean insurers rated by AM Best posted favorable earnings in 2021. See the Best’s Rankings list of the Largest Caribbean Insurers — 2022 Edition.
- October 2022
SWEEPING VISTA: A view of Nassau, capital of the Bahamas and its largest city. Climate risk is the biggest threat to the Caribbean region, according to AM Best.
Editor's Note: The following is an excerpt from the Best's Market Segment Report: Climate, Reinsurance, and Cyber Remain High in the Caribbean Risk Landscape. Visit www.ambest.com to access the full report.
The rated Caribbean insurers endured another challenging year in 2021, after negotiating a vast number of hurdles owing to COVID-19 in 2020, including government-imposed lockdowns, shelter-in-place restrictions, struggling economies and tepid investment markets. The pandemic tested the risk management and capabilities of both P/C and L/H insurers. Business continuity and growing cyberrisk threats came to the fore as companies adjusted to the reality of working remotely.
Amid this backdrop, climate risk adds an additional layer of uncertainty as it remains the biggest threat to the Caribbean. The experience of Hurricanes Irma and Maria in 2017 and Hurricane Dorian in 2019, which resulted in significant economic losses across the Caribbean, have impacted risk appetites and pricing for reinsurance across the region. The region has experienced some respite in the benign loss years following Hurricane Dorian. Although the 2021 hurricane season was very active, the region was spared any significant land-falling hurricanes. One hurricane, Elsa, did threaten the Caribbean in early July, but it weakened into a tropical storm the day after being named a hurricane; insured losses were estimated at US$50 million according to Karen Clark and Company.
In August 2021, Haiti was struck by a 7.2 magnitude earthquake, which served as a reminder that the region is susceptible to not only wind events but also seismic activity. According to Karen Clark and Company, insured losses were estimated at US$250 million while economic losses were estimated between US$1 billion and US$7 billion, indicating that barely 15% of losses were insured—once again highlighting the significant protection gap in the region, as well as the major role that greater insurance penetration can play in narrowing that gap.
Despite the low level of claims activity in 2021 and thus far in 2022, reinsurance pricing continues to reflect increased hardening as insurers and reinsurers are feeling the effects of inflation. Construction industry costs such as labor, lumber, and other raw materials have increased considerably and are reflected in higher loss costs for insurers and reinsurers. In addition, the growing frequency and severity of global catastrophic events have forced reinsurers to adopt a more circumspect approach to climate risk. In some instances, this has resulted in double jeopardy for Caribbean insurers in the form of higher reinsurance rates (more than 15%) and less capacity. A hardening casualty market and changing perspectives on property risk have caused reinsurers to allocate more capital to casualty risks and shy away from property exposures—a challenge for the Caribbean insurance market.
The economic contraction experienced in many Caribbean countries also delayed the execution of a number of growth and strategic initiatives for insurers in the region. Caribbean insurers are now navigating through economic headwinds and market volatility spurred on by inflation, slower economic growth, and global geopolitical tensions. All of these are on the heels of what is still anticipated to be a busy Atlantic hurricane season. In its August 4, 2022 update, the National Oceanic and Atmospheric Administration (NOAA) Climate Prediction Center is forecasting a likely range of six to 10 hurricanes, including three to five major ones.
Improvement in Overall 2021 Net Income for Property/Casualty Companies
In 2021, the consolidated net income of the rated Caribbean P/C insurers improved over 2020 levels. In general, the group performed creditably in both years, with all but one insurer recording a loss, highlighting the risk management practices of the Caribbean P/C insurers AM Best rates. Some insurers posted lower earnings despite profitable results, attributable partly to the reopening of regional economies and the end of government-imposed lockdowns, which resulted in more normal claims utilization levels.
Consequently, the 2021 consolidated loss ratio for rated P/C companies increased by 3.4 percentage points (to 47.4% from 44.0% in 2020), with most companies reporting higher loss ratios. Consolidated gross premiums for 2021 rose by 10.6%, reflecting continued price firming in certain territories, while net premiums rose by 5.3%, despite higher cessions by some companies. The overall combined ratio deteriorated slightly, to 95.3 from 94.8 in 2020, which had improved by 4.1 percentage points over 2019. Consolidated surplus increased by 3.2% over 2020 to US$853.9 billion, reflecting the group's favorable earnings in 2021.
2021 Revenue for Life/Health Companies Improves Slightly
The Caribbean L/H companies experienced a slight improvement in top line growth after emerging from the pandemic-related disruptions, as total revenue was up slightly. Both life and health premiums stabilized as insurers no longer had to provide premium relief to policyholders as economic conditions improved, stay-at-home restrictions abated, and tourism reversed from its bottom. Insurers with direct exposures to mortgage loans and bonds continued to experience declining valuations in certain regions, as companies analyzed their expected credit losses, probabilities of default, and assumptions on financial investments. As revenues and income stabilized due to an improving pandemic-related experience, the industry was able to generate earnings and absolute organic capital growth. In 2020, insurers benefited from a decline in health claims expenses because of changes in policyholder behavior and the drop in medical utilization due to stay-at-home conditions. Most of the improvement in net income was at Sagicor, which has broader geographic territories. Factors impacting income for insurers were related to improving premiums, growth in investment income and higher fee income, partially countered by a rise in claims payments as policyholders sought more health services than in the previous year. Consolidated equity grew by a modest 1.5%, compared to about 3% the previous year. In some cases, the capital improved owing to capital contributions from a parent company or organic growth in earnings.
Largest Caribbean Insurers — 2022 Edition
Insurers were ranked by 2020 gross premiums written.
||Country of Domicile
||Manufacturers Life Reins Ltd
||IAT Reins Co Ltd
||RGA Atlantic Reins Co, Ltd.
||Royal Bank of Canada Ins Co Ltd.
||T D Reins (Barbados) Inc
||NCB Finl Group Ltd
||Greenlight Capital Re, Ltd.
||Knight Ins Co Ltd.
||Scotia Ins (Barbados) Ltd
||Best Meridian Intl Ins Co SPC
||Lincoln Natl Reins Co (Barbados) Ltd
||BMO Reinsurance Ltd
||Barents Re Reins Co, Inc.
||London Life & Cas Reins Corp
||Energy Ins Mutual Ltd
||Raffles Ins Ltd
||Sagicor Life Jamaica Ltd
||Seguros Universal, S.A.
||Ocean Intl Reins Co Ltd
||Humano Seguros S.A.
||CG United Ins Ltd.
||Seguros Reservas S.A.
||Inreco Intl Reins Co
||Bahamas First Hldgs Ltd
||Mapfre BHD Compania de Seguros SA
||Island Heritage Ins Co, Ltd.
||Wentworth Ins Co Ltd
||Fortegra Indemnity Ins Co LTD
||Turks and Caicos
||Colina Ins Ltd
Sources: and AM Best research data as of Aug. 31, 2022.