Insurance rates edge down

Slowly but surely, property insurance premium rates in the Cayman Islands are going down after the sharp increase caused by Hurricane Ivan in September 2004.

Property insurance providers started getting their property catastrophe insurance in early January, but some don’t have it in place for several months yet.

Island Heritage Insurance CEO Garth MacDonald said his company does not renew its catastrophe reinsurance until 1 April but that he was hearing from the reinsurance industry that costs were going down in the Caribbean region.

‘There should be a slight softening of rates,’ he said. ‘I’d say about 10 per cent.’

Sagicor General Insurance President Danny Scott agreed that the premiums were going down, but he declined to quantify the decrease.

‘I think the market is postured to reduce rates a fraction,’ he said.

Mr. Scott noted the Cayman public expected rates to go down after several quiet years on the hurricane front.

‘It’s tough to tell consumers after three years of nothing happening that they can’t get a break,’ he said.

Tom Gammage, vice president and regional marketing manager of Fidelity Insurance said Cayman’s quiet hurricane seasons recently doesn’t really come into play because the reinsurance rates are based on a wider market.

‘Generally, what happens here locally has very little to do with our insurance rates here,’ he said.

Illustrating that point, Mr. Scott pointed out that Cayman’s insurance rates have gone up in the past based on hurricane activity in other parts of the Caribbean region.

‘Prior to Hurricane Ivan, our rates doubled the year before because of a hurricane hit elsewhere,’ he said.

Arthur Bogle, chief operating officer of Derek E. Bogle & Associates, said he started seeing a three to five per cent decline in insurance rates from last year.

‘Rate reductions tend to happen – even if they aren’t suppose to – at the end of the year in anticipation of reduced reinsurance rates,’ he said. ‘From the last quarter of last year, we started to see rates go down a little bit.’

Mr. Gammage also said he started seeing the rates decline from last year.

‘They’ve probably dropped five to 10 per cent,’ he said. ‘But I haven’t really seen any market difference between January and December of last year.

‘It’s still probably a little early though,’ he said, adding that many carriers are still getting their catastrophe reinsurance in place.

Although Cayman-based Greenlight Re isn’t the reinsurer for any Cayman-based property insurers – it only sells the reinsurance of reinsurers – President and Chief Underwriting Officer Bart Hedges said the company is familiar with the property catastrophe market.

Mr. Hedges said the most used property catastrophe rating models showed the Caribbean in general and Cayman in particular to be exposed to the same events that expose the Gulf of Mexico and Florida.

‘In these peak zones the original insurance rates are primarily determined by the cost of reinsurance,’ he said. ‘The cost of reinsurance is a function of many factors, but clearly one big factor is supply. There is generally more reinsurance capacity in the peak zones in 2008 than there was in 2007, therefore rates are generally down.’

Mr. Hedges said reinsurance rates in the hurricane exposed areas of the southeast United States and the Caribbean were down between five and 15 per cent from last year.

Despite two major Category 5 hurricanes – Dean and Felix – making landfall in Mexico and Central America in 2007, they did not cause large insurance industry losses and thus didn’t impact reinsurance ratings to a great extent, Mr. Hedges explained.

‘If they had turned further north, they would have caused much greater insured damage and they may have been a factor in the 2008 renewal season.’

Even if Cayman and the Caribbean region have another quiet hurricane season in 2008, Mr. Hedges said rates would probably only continue to fall slowly and incrementally, without a large decrease.

One thing that could change that is a market-changing event that either creates more reinsurance capacity or reduces the capital required to maintain a suitable rating from an insurance-rating agency like A.M. Best.

‘The only thing that might change the reinsurance rates – either up or down – is the short term view of hurricane activity,’ he said. ‘It is generally felt that we are in a cycle of heightened hurricane activity in the Atlantic basin due to global warming. If this view is reversed or exacerbated, it could impact the rates.’