A.M. Best Begins to Assess Impact of Hurricane Sandy on P/C Personal, Commercial and Captive Insurers
Hurricane Sandy made landfall on October 29, 2012, in New Jersey, inflicting severe damage largely on communities and companies with operations largely in New Jersey, New York, Pennsylvania and Connecticut. Modeling companies are still analyzing the event, coverage of publicly owned facilities is being determined, claims adjusting teams are being rallied and state insurance officials are arguing coverage terms. As preliminary losses are totaled by insurers and reinsurers, A.M Best analysts are contacting the effected companies to get indications on a company-by-company impact of the event.
Included in the analytical due diligence are personal and commercial carriers with meaningful market share in the effected states with a particular emphasis on the smaller, more local companies. In addition, global reinsurers are being contacted to determine if the loss was outside of the amount estimated for their 1 in 100 year event used during the company's most recent analytical update. Lastly, some rated captives may have losses particularly in the energy, manufacturing and housing space.
It should be noted, the capital model that supports the ratings of all companies is tested for one PML (Probable Maximum Loss) of a 1 in a 100 year hurricane event and then stress tested as an ongoing entity after that event. The danger is if the uniqueness of Hurricane Sandy is beyond what the companies anticipated. There were occasions of this happening during Hurricane Katrina, principally to locally focused companies. However, more recently, reinsurers' cat stressed BCARs absorbed the impact of the 2011 global catastrophic events - both singularly and in the aggregate with very few rating actions taken and absolutely no impact on reinsurer solvency.
Adding to the issue, in the case of Hurricane Sandy, there is discussion that the storm will not be treated in insurance contracts as a hurricane. In this case, companies would be exposed to losses from hurricane force winds which they thought would in many cases be within a hurricane deductible. Given the newness and uniqueness of the event and the many unknowns as insurers deal with the many functional operational issues in the region, it may be many weeks before our analysis will be more conclusive. AM Best's focus is on the review of ratings on a company by company basis rather than a market share or industry wide review. AM Best may periodically update its constituents on the results of this further analysis.
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