While affirming the A+ financial strength rating of the Society of Lloyd’s, S&P Global Ratings announced said Thursday that it revised the rating outlook to negative from stable in the wake of hurricane losses.
Lloyd’s has already estimated losses from hurricanes Harvey and Irma at of £3.3 billion, or roughly $4.5 billion. Those losses “have made it more challenging for the market to restore its capitalization to a level consistent with the current rating,” S&P said in statement, noting that more losses from hurricane Maria and other potential catastrophe events expected to impact the fourth-quarter financials.
S&P believes that the restoration of capital to the rating-consistent level of “AAA” capital is likely, as individual members and premium rates potentially in the aftermath of the catastrophe events. “Lloyd’s management will require members to inject more capital into their market operations as part of the ‘coming into line’ exercise in late 2017, before business plans for 2018 can be approved.”
In spite of that believe, “significant uncertainties remain,” and those prompted the outlook revision, S&P said.
The uncertainties include:
- Further major losses.
- Weaker-than-anticipated rate recovery.
- Members choosing to take advantage of rate revivals outside of their Lloyd’s platforms.
XL Outlook Revised
Lloyd’s wasn’t the only insurance entity to be subject to an outlook revision yesterday, with S&P also announcing that cat losses drove the rating agency to change the outlook for the A+ financial strength rating of XL’s insurance and reinsurance operations to stable from positive.
After XL Group Ltd announced its preliminary estimate of nearly $1.5 billion in total catastrophe losses for the third quarter, with roughly $1.3 billion related to hurricanes Harvey, Irma and Maria, S&P reacted noting that XL’s risk-adjusted capitalization would fall to the “AA” level (lower than the “AAA capital level consistent with an A+ financial strength rating), adding that this lower level is actually better aligned with the company’s long-term capital management.
S&P revealed another consideration related to the integration of XL and Catlin and the resulting operating performance of the combined entity XL Catlin. Here, S&P noted that while the integration has been successful, “the overall operating performance improvement has not materialized to the extent expected” by S&P previously.
Meanwhile, XL said that its $1.5 billion preliminary pre-tax cat losses estimates, which are net of reinsurance and reinstatement premiums, fall to $1.4 billion after taxes.
Separately, the Association of Bermuda Insurers and Reinsurers, which includes XL among its members, announced Tuesday that Bermuda market companies ultimately could fund one-quarter—or more—of roughly $100 billion in aggregate insured losses from hurricanes Harvey, Irma and Maria for the industry.
Noting that some Bermuda reinsurers, including ABIR members, began reporting estimates of net insured losses last week, Brad Kading, ABIR’s president and executive director spelled out the three-fold value of Bermuda reinsurances: “First, advancing cash for liquidity so insurance clients can pay consumer claims; second, transferring risk around the world and diversifying it, so the cost of hurricanes is not solely paid by policyholders and taxpayers in the affected area; and, third, by providing balance-sheet protection so while insurers are liquidating assets to pay claims, additional funds provided by reinsurers allow them to continue selling new insurance contracts daily and still meet regulatory capital targets. That helps consumers get repairs made faster and helps local economies to recover, rebuild and return to productivity.”
Besides XL, other ABIR members that reported loss estimates this week include Arch Capital Group, AXIS Capital Holding and Validus Holdings.
- On Monday, Validus announced expected losses from the three hurricanes and from the recent Mexico earthquakes, net of reinsurance and retrocessional recoveries, amounting to $378.9 million.
- On Thursday, Arch Capital Group announced an after-tax preliminary range extending from $285 million to $345 million for the three hurricanes, Mexican earthquake events and other minor global events (also net of reinsurance and reinstatement premiums).
- AXIS Capital, also announcing its estimates yesterday, put its pre-tax losses from the hurricanes and earthquakes at $617 million, net of reinsurance and reinstatements. The after-tax total is $578 million.
Additionally, AXIS noted that having acquired the shares of Novae Group plc on Oct. 2, Novae’s results of Novae will be included in the AXIS Capital results from that date, adding some $60 million to the financial impact.
Separately, Everest Re Group, which considers itself a Bermuda company (but is not listed as a member of ABIR), announced a higher figure than the others on Thursday, stating that it expects pretax catastrophe losses, net of reinsurance and reinstatement premiums of $1.2 billion from the three hurricanes and from earthquake events in Mexico. Everest estimates the after-tax impact at $900 million.
In its announcement, Everest made note of the fact that the group is a leading sponsor of catastrophe bonds, through the Kilimanjaro Re series, providing $2.8 billion of multiyear collateralized capacity for specific perils as well as aggregate protection for losses arising from named territories, including Texas, Florida, and Puerto Rico.
Other catastrophe loss estimates this week came from Virginia and Ohio.
Richmond, Va.-based Markel pegged its preliminary pre-tax underwriting losses for the events of just over $0.5 billion;
While Cincinnati Financial Corporation announced the lowest figures of any insurance or reinsurance group reporting this week, the pretax range of catastrophe losses estimated at $102 million to $114 million, will add 8.6 to 9.6 points to the third-quarter combined ratio, the company said. The upper end is almost twice as high as the 4.8-point historical average contribution of catastrophe losses to the third-quarter combined ratio experienced over the past decade, the company reported.
Source: S&P Global Ratings, ABIR, Company reports