The message coming out of the Insurance Association of the Caribbean’s annual conference held recently in Montego Bay, Jamaica, was loud and clear: reinsurers are putting the squeeze on companies in the Caribbean market to increase rates, in the aftermath of the 2005 hurricane season, during which Katrina, Rita and Wilma caused projected insured losses in excess of US$80 billion.
With the threat of increased rates looming over Cayman residents in coming months, Paul Lalor, President of the Insurance Company of the West Indies Ltd, says bearing in mind the conditions currently faced by reinsurers on a global basis the cost of catastrophe insurance is increasing, but not all Cayman residents face the same threat.
‘Given those losses and recent adjustments to the catastrophe pricing models used by reinsurers to account for the projected increase in the frequency and severity of hurricanes for the next few years and also for storm surge which caused significant losses in 2004 and 2005, insurance companies had to ensure that the rates they were charging were in line with the technical rates that the reinsurers had for the individual territories,’ Mr. Lalor commented.
Mr. Lalor said that taking into consideration the attractive rates being charged for reinsurance in the US market following the 2005 season, the willingness of reinsurers to offer capacity to the Caribbean is increasingly dependent on the Caribbean’s ability to achieve the reinsurers’ desired rates.
‘Following Hurricane Ivan the rates in Cayman were in line with current expectations. However, competitive forces in the local market have resulted in some companies charging rates which are 30 per cent below post-Ivan levels,’ said Mr. Lalor.
He continued, ‘It may be argued that this reduction in rates is in the best interest of our clients but in a global market where reinsurance capital chases the highest rates, the competition in the local market may in fact remove or, at best, limit the availability of capacity in the future. Applying the laws of supply and demand local insurers might then have to charge far in excess of the post-Ivan rates.’
According to the ICWI President, reinsurers were happy with the rates being charged in 2005 and a few local insurers have in fact maintained stable rates even at the cost of losing some business.
‘On these companies, there is no pressure from reinsurers to increase,’ he confirmed. ‘In an area exposed to significant risk, providing excellent security is what we as an industry should continue to work towards. The ability of insurance companies to provide that security is heavily dependent on charging the right rate so that we can afford the increased cost of reinsurance, much of which Cayman was already exposed to after Hurricane Ivan.’
Mr. Lalor stated that the message from the IAC conference was really aimed at other Caribbean territories, east and south of Cayman where the rates have been historically below what is expected.
‘Perhaps a few players in the Cayman market were singled out but, on the whole, we know what we need to charge to ensure that we can continue to offer the protection that Cayman residents need in the current cycle of heightened windstorm risk,’ he concluded.