Caribbean property/casualty insurers posted an 8 per cent increase in net income in 2021 to more than $70 million, highlighting carriers’ risk-management practices, but the region remains highly vulnerable to a number of risks, led by climate risk, a new report says.

In the market segment report by AM Best, Climate, Reinsurance and Cyber Remain High in the Caribbean Risk Landscape, the ratings agency said that although carriers generally cleared a number of hurdles created by Covid-19, the pandemic highlighted vulnerabilities in the region.

This was particularly apparent in its high reliance on external demand to fuel economic growth and the undiversified nature of many economies, which depend on foreign exchange activities such as tourism, financial services and commodity exports.

Climate risk adds an additional layer of uncertainty as it remains the biggest threat to the Caribbean, AM Best said.

Despite the low level of claims activity related to catastrophes in 2021 and thus far in 2022, reinsurance pricing continues to reflect increased hardening as insurers and reinsurers are feeling the effects of inflation.

“The growing frequency and severity of global catastrophic events have forced reinsurers to adopt a more circumspect approach to climate risk,” said Ricardo Longchallon, senior financial analyst.

“In some instances, this has resulted in double jeopardy for Caribbean insurers in the form of higher reinsurance rates, in some cases more than 15 per cent, and less capacity.”

Despite ongoing recovery, tourism’s contribution to GDP remains below pre-Covid levels and likely will take years to return to pre-pandemic levels, the ratings agency said.

It added that despite improving in 2021, tourism’s contribution to GDP is still well below that of 2019.

Consolidated gross premiums among rated Caribbean property/casualty insurers rose 10.6 per cent in 2021, reflecting continued price firming in certain territories, while net premiums rose 5.3 per cent, despite higher cessions by some companies.

The overall combined ratio deteriorated slightly, to 95.3 from 94.8 in 2020, which had improved by 4.1 percentage points over 2019.

Consolidated surplus increased 3.2 per cent over 2020 to $853.9 billion, reflecting the group’s favourable earnings in 2021.

Caribbean life/health companies experienced a slight improvement in top-line growth after emerging from the pandemic-related disruptions, as total revenue was up slightly.

Life and health premiums stabilised as insurers no longer had to provide premium relief to policyholders as economic conditions improved, stay-at-home restrictions abated and tourism reversed from its bottom.