AM Best expects the bulk of losses resulting from Hurricane Francine to be manageable and borne by primary insurers given a shift toward higher reinsurance attachments, but companies focused on growing business in Gulf Coast states will face a key test as claims materialize.

The Best’s Commentary, “Growing Gulf Coast-Focused Insurers Face Key Test in Hurricane Francine,” noted that a trend toward higher attachments were part of de-risking measures by reinsurers that followed Hurricane Ian in 2022. In the case of Hurricane Francine, the landfall location in a more sparsely populated section of Louisiana should limit the economic impact. This hurricane is also being considered more of a flooding event than a wind event, which could also temper the volume of insured losses.

“However, there could be pockets of concentrations in which insurers with higher dependence on reinsurance could see greater impacts, which will take time to determine,” said Jason Hopper, Associate Director, AM Best.

Half the 10 costliest hurricanes to impact the U.S. based on insured losses have occurred since 2017; Florida, Texas, and Louisiana have been impacted by eight of them. AM Best has identified 72 companies whose total direct property catastrophe risk premium written in the five Gulf Coast states—Texas, Louisianna, Mississippi, Alabama, and Florida—equates to more than two-thirds of their total direct premium. These companies, described in the report as Gulf Coast property catastrophe specialists, have been capturing a greater share of Gulf Coast property catastrophe net premium written over the past five years, accounting for about 20% of this regional market. The level of premium ceded to reinsurers by this group has more than doubled since 2020.

As reinsurance becomes more expensive in the Gulf Coast region, managing counterparty risk remains an important component of a comprehensive enterprise risk management framework, according to the report. Approximately About 27% of the premiums ceded by the Gulf Coast property specialists is ceded to reinsurers domiciled in Bermuda, of which more than half goes to reinsurers that are not rated by AM Best.

To access a complimentary copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=346749.

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.

Copyright © 2024 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240913823357/en/