The 2017 U.S. hurricane season may be here, but property/casualty insurers should be able to handle the challenges it brings. Fitch Ratings said in a new report.

“Fitch currently has a negative sector outlook on the P/C industry, largely related to near term market conditions and profitability challenges,” Fitch said. “However, industry capital remains very strong … providing most insurers with an ability to absorb near-term volatility and the effects of adverse events.”

Fitch noted that the extra strength comes, in part, from an aggregate policyholders’ surplus that grew by 3.1 percent in 2016 to $713 million, giving many insurers the capacity to handle short term catastrophe events such as hurricanes.

There is some recent precedent for property/casualty insurance industry resiliency in the face of hurricanes – when Hurricane Matthew struck in 2016. Fitch pointed out that Hurricane Matthew put some earnings pressure on underwriters in Florida and other southeast states, but the storm and its aftermath did not cause a major capital challenge to the industry at large. That comes even as the national Flood Insurance Program paid out close to $4 billion in Hurricane Matthew-related claims as of April 2017, according to Aon Benfield statistics cited by Fitch.

Two other Hurricanes left far more damage. The National Flood Insurance Program’s Hurricane Katrina and Superstorm Sandy flood claims were its two largest ever, the forces behind the NFIP’s $23 billion debt to the U.S. Treasury, according to Fitch.

Still, there are some variables ahead for the new hurricane season.

As Fitch pointed out and others have predicted, experts now believe the U.S. hurricane season will be above average in terms of frequency, versus long-term results.

Also, property pricing remains competitive, with large volumes of under-deployed capital and low demand in particular from reinsurance buyers. Fitch said that this will leave a challenging pricing environment for the primary property market and mid-year 2017 reinsurance renewals.

As well, the Fitch report pointed out that Florida specialist insurers remain untested by a major hurricane.

“Hurricanes Matthew and Hermine affected the earnings of homeowners specialist underwriters in Florida, but did not present a major capital challenge,” the Fitch report said. “Many growing Florida property insurers have brief histories, untested by a large loss event, which creates uncertainty as to how these firms will respond to a future hurricane that generates significant industry losses.”

Source: Fitch Ratings