Irma tears through Caribbean, parametric coverage triggered

Hurricane Irma grazed the northern coastline of Cuba on Friday, leaving a wide path of destruction through the northern Caribbean, as well as some deaths across multiple island groups.

The storm has already triggered parametric tropical cyclone insurance, as the CCRIF SPC (formerly the Caribbean Catastrophe Risk Insurance Facility) approved a US$15.6mn payout to the governments of Antigua & Barbuda, Anguilla and St. Kitts and Nevis

"The lethal and catastrophic damage caused by Hurricane Irma accentuates the vulnerabilities to which the nations and economies of the Caribbean are exposed in the presences of hurricanes," said Moody's senior credit officer Gabriel Torres in a statement.

"While it will take weeks to evaluate the total damage caused by this latest storm, the short-term credit impact for affected countries will vary depending on the costs required for the reconstruction afterward," he added. "Longer term, the storm could further exacerbate the weak economic growth in the region, as the reconstruction of critical tourism infrastructure, such as hotels, could take months or even years."

In a statement, the CCRIF SPC announced it would pay Antigua & Barbuda US$6.79mn, Anguilla US$6.53mn and St. Kitts & Nevis US$2.29mn, adding these are preliminary figures.

The insurer added it was studying a payout for excess rainfall in St. Kitts & Nevis and would continue to monitor developments as the storm progresses.

According to CCRIF website, since its foundation in 2007 the facility has made 22 payouts for hurricanes, earthquakes and excess rainfall, to 10 member governments, totaling approximately US$69mn.

"The current payments will bring the total to approximately US$85mn. Last year CCRIF made payouts totaling US$29mn to four countries after Hurricane Matthew," it added.

The storm continues to impact Cuba and the Bahamas with its sights set on southern Florida for an impact, as a category-4 hurricane, that could have strong implications for the global reinsurance industry.

Insurer ratings and news agency A.M. Best said in a briefing it expects the majority of reinsurers to incur losses from Irma, adding that should Hurricane Irma's impact amount to an insured industry loss above US$75bn, the reinsurance sector likely is to incur a meaningful underwriting loss for the full year and experience a modest loss of capital.

"Those reinsurers that have historically specialized in property catastrophe reinsurance or are more US-centric and have maintained their risk appetites for Florida and Caribbean property catastrophe risks are likely to be more disproportionately impacted by these losses," said A.M Best, adding it expects the impact to reinsurers' earnings to be more pronounced as a result of pricing erosion in recent years, balance sheets are extremely strong and have been stress-tested sufficiently to absorb extreme losses.