A.M. Best expects Super Typhoon Haiyan to be an earnings event for reinsurers, but gross losses are not expected to exhaust reinsurance capacity, the rating agency said on Tuesday.

While Haiyan was possibly the strongest tropical cyclone ever recorded, A.M. Best does not expect any major rating impact on insurers, the Oldwick, N.J.- based rating agency said, citing one preliminary estimate placed total economic losses at $14 billion and insured losses at $2 billion.

According to Best, insured losses in the Philippines will be spread across many segments, including per­sonal lines, fire and property, and marine hull.

  • Fire/property and marine hull will be well reinsured through the major global reinsurers and through Lloyd’s, which will also absorb some marine losses on a primary basis.
  • Net losses to primary insurers will be limited, and some commercial losses also may be covered through captives or other forms of self-insurance.
  • In personal lines, insurance penetration is very low in the region where Haiyan struck, and standard homeowners poli­cies exclude flood coverage, which must be purchased separately.
  • For reinsurers, the impact will be minor for the large, global companies but more substantial for smaller, regional players.

For the larger reinsurers, the catastrophe is yet another loss on top of a string of recent catastrophes in Europe, including hailstorms; floods in Germany and the Slavic countries; and last month’s St. Jude storm that struck both the United Kingdom and the Continent.

Typhoons are relatively common in the Philippines, which has high exposure to an array of natural catastro­phes, ranking third in the world, according to the 2012 World Risk Report of the United Nations University Institute for Environment and Human Security.

Haiyan was the second Category 5 typhoon to hit the country this year, following Typhoon Usagi in September. The area struck by Haiyan was still recovering from an earth­quake that shook Bohol province on Oct. 15.

Best also noted that a 2012 earthquake stimulated discussion of establishing the Philippines’ first natural catastrophe pool to help cover residential losses. Insurers currently make heavy use of reinsurance, with 10 percent of cessions required to go to the state reinsurer, PhilNaRe. The company in turn makes extensive use of overseas retrocession to protect its capital base against exposure to catastrophe losses.

A.M. Best believes the frequent and intense natural catastrophes in the Philippines this year will accelerate the discussion of a national catastrophe scheme and microinsurance in the country. At the industry and company levels, awareness of the need for catastrophe protection on personal lines will increase, the rating agency said.

Source: A.M. Best