One of the problems facing the Bermuda’s reinsurance industry is that there haven’t been serious catastrophes recently. Another is that due to limited options for investment returns, capital has flooded into the reinsurance space. As a result, reinsurance rates are quite low and companies have been pressured with a great deal of competition. Hurricane Matthew could change this.
It is hoped that those in Florida are heeding the evacuation warnings. Hurricane Matthew looks like it could be a very serious Hurricane leading to much damage and possible loss of life. Hopefully this will not be the case, but the reality we face is that occasionally we do face catastrophes and Bermuda offers reinsurance products which help reduce the burden of rebuilding after they strike.
If Hurricane Matthew causes significant damage it will push up rates and could collapse a few reinsurers who are most exposed to losses. When this has happened in the past it has caused a rush of new startups as the industry capacity is weakened and rates are pushed up. Traditionally many of these startups have founded in Bermuda and can lead to economic growth as reinsurers recapitalize.
The question is, could it be different this time? The reinsurance industry has evolved quite a bit in recent years. Introduction of spin off “sidecar” companies designed to contain and isolate losses has improved the ability of reinsurance companies to survive catastrophe losses. Insurance linked securities, the ability to make reinsurance risk more easily trade able, has allowed companies to more readily diversify risk as well. Another question is, should there be a boost of new business, what potential will there be for founding of new technology focused reinsurance startups?
Hurricane Matthew unfortunately has the potential to be quite a devastating storm. According to Weather Underground, it has the potential to run up the coast of Florida causing significant damage. For those unaware, weather underground writes a blog that is one of the best sources for information on Hurricanes. They write that one of the big risks for this hurricane is that it’s track takes it to areas that have almost never faced hurricanes in the last couple hundred years.
Traditionally (considering tracked hurricanes since 1851), few hurricanes have struck the central and northern coast of Florida. These areas have usually only faced hurricane that tracked from the Gulf of Florida across the state to the Atlantic side. Hurricanes which travel over land tend to weaken so they haven’t traditionally faced strong hurricanes. Hopefully people in Florida heed the evacuation calls and get themselves out of harms way. Sadly, if hurricane Matthew takes its suggested path it will cause a great amount of destruction in areas that have little experience with hurricanes.
Will Hurricane Matthew be a devastating catastrophe or will Florida get lucky? What could Hurricane Matthew mean for Bermuda reinsurance and insurtech? How has the industry evolved to handle these sorts of catastrophes? Will we see a new class of re-insurers and tech focused re-insurers as a result? Time will tell.