Puerto Rico-domiciled insurers should be able to navigate losses driven by the storm surge, power outages and flooding that Hurricane Ernesto has unleashed there, with the island’s eastern and central regions being the most impacted, according to a new AM Best commentary.

The newly issued Best’s Commentary titled, “Market Growth in Recent Years to Help Puerto Rico Insurers Absorb Hurricane Ernesto Losses,” notes that it remains relatively early in terms of the insured claims handling process, but initial feedback from insurers operating there indicates that property losses will be moderate and contained within reinsurance limits. Based on initial discussions with AM Best-rated companies, most of the damage has been the result of storm surge and flooding, the latter of which is not covered by the standard homeowners’ policy.

“Given the island’s many infrastructure issues and much of the island without power, claims processing will take longer—a situation further complicated by supply and transportation problems,” said Jason Hopper, associate director, Industry Research and Analytics, AM Best.

Hopper noted that the ultimate magnitude of business interruption losses is uncertain given the widespread power outages being reported in Puerto Rico. Many unaffiliated domestic carriers there that underwrite commercial policies and offer power outage endorsements have stated that a good percentage of insureds do not pick up this endorsement.

Prior to hurricanes Maria and Irma, new premium generation in Puerto Rico essentially had been flat for years. However, net premiums written (NPW) growth has averaged nearly 6% annually since, outside of a marginal decline in 2020. Additionally, unaffiliated Puerto Rico-domiciled companies have comprised an increasing share of total Puerto Rico’s NPW since, accounting for nearly 78% of total NPW there in 2023, up from 68% in 2018.

Premium ceded for the unaffiliated Puerto Rico-domiciled companies to reinsurance companies has more than doubled since 2017. Some companies have had to lower their exposures based on a reassessment of risk tolerance due to rising reinsurance costs; however, renewals for 2023 and 2024 were less chaotic, and rate increases have moderated a bit in 2024. To date, companies have indicated that losses should remain within reinsurance limits.

To access the full copy of this Best’s Commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=345802.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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