A.M. Best sees negative turn for Puerto Rico insurers

Six rating actions taken by insurance-focused ratings agency A.M. Best in recent months suggest the firm's outlook for Puerto Rican insurers has deteriorated.

Just after the devastating impact of Hurricane Maria last year, the firm had said the impact would be manageable for insurers on the island; however, its readings for solvency in the sector and future outlook for insurers in the market are markedly negative.

In August, A.M. Best downgraded its credit rating for insurer Cosvi to 'c' (poor) and that of Antilles Insurance Company to 'a-', still excellent but a downgrade nevertheless. It also lowered its rating of Tower Bonding and Surety Company to 'b-' (fair) and changed the outlook for the local subsidiary of Australia's QBE to negative.

Also last month, A.M. Best placed Triple-S Property's financial strength classification under review with "negative" implications. In June, the agency lowered its rating for One Alliance Insurance Corporation to category 'B' (fair).

In reports compiled by local daily El Nuevo Día, A.M. Best said that the changes or credit revisions responded to a variety of factors, including problems existing before the hurricane struck, and that these would require readjustments of the firms' business models.

For example, the agency's report on Antilles noted, "The rating actions reflect a significant decline in Antilles' policyholders' surplus, primarily driven by substantial stockholder dividends, unrealized capital losses in 2014 and 2015 and deterioration in underwriting performance in the most recent years."

A.M. Best's revisions are coming just ahead of the first anniversary of Hurricane Maria's impact, and while it said Puerto Rico should expect large losses from the event, the deterioration in its outlook for the sector mirrors cracks in the system that have appeared in the aftermath of the storm.

In response, the debt-saddled government has applied considerable pressure on insurers amid complaints of late or insufficient payouts and introduced legislation to expand the playing field for reinsurance in the US territory.

"As a result of the increase in losses, Hurricane Maria claims subsequently exceeded the available reinsurance protection," said A.M. Best in its review of Triple-S, as reported in El Nuevo Día.