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12 December 2017

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FM Global tells reinsurers no Maria claims on cat XoL

David Bull 5 December 2017

FM Global has told its reinsurers that it does not expect Hurricane Maria claims in Puerto Rico to attach its main property cat excess-of-loss programme, The Insurance Insider can reveal.

The insurer's cat tower is thought to attach at around $550mn with $1bn of reinsurance protection.

If the tower does not trigger, that may indicate that actual claims from Maria are coming in at a lower level than initially feared.

FM Global was seen as a potential source of major property, business interruption (BI) and contingent business interruption (CBI) claims because of its leading position in insuring the pharmaceutical industry in the US territory.

Commentators had cited uncertainty around pharmaceutical losses and BI/CBI claims as a possible explanation for the yawning gap between aggregated company loss notifications for the storm and the top-end estimates from cat modelling firms.

Maria produced the largest divergence in industry loss estimates from this year's trio of major hurricanes, with AIR Worldwide putting out an initial range of $40bn to $85bn.

Rival RMS came in with a significantly more conservative range of $15bn to $30bn for Maria losses.

In a statement last month, RMS acknowledged that BI losses from Puerto Rico were still expected to be "significant", in part due to closures of pharmaceutical factories.

Anecdotal evidence had also highlighted challenges faced by commercial insurers in getting teams of loss adjustors to the stricken island.

Although FM Global has told reinsurers its cat tower has not been triggered, it has a number of other covers in place that inure to the benefit of the programme.

It is not yet known whether the carrier's per-risk treaty has seen claims.

The cover is thought to have a $300mn attachment point on individual claims and in excess of $1bn of limit.

Meanwhile, sources have suggested that FM Global's so-called "core reinsurance treaty" (CRT) is expected to take losses.

It is understood the CRT can be utilised on a pro-rata or excess-of-loss basis.

The way the limit is used is determined up front as FM Global builds out its capacity when it establishes line sizes for different types of business.

This publication revealed in mid-October that the insurer had already told reinsurers on the cat excess-of-loss and per-risk treaties they would avoid losses from hurricanes Harvey and Irma.

As a market leader in big-ticket commercial property insurance, FM Global puts out large limits on single accounts, which leaves it exposed to lumpy claims.

Its risk and cat excess-of-loss reinsurers were hit with significant losses from Sandy in 2012.

But the profiles of Harvey and Irma at least indicate a greater number of smaller commercial claims compared to Sandy, when major losses came from insureds such as New York's Metropolitan Transportation Authority, the Port Authority of New York and New Jersey, Verizon and Amtrak.

FM Global did not respond to a request for comment on Maria losses.

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This article was published as part of issue December 2017/1

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