Irma set to cost insurance industry less than initially feared and unlikely to shift market

Insured loss estimates from Hurricane Irma are lower than initially feared, with the latest placing costs at around $25bn. Experts predict that losses from Hurricanes Irma and Harvey will not shift global insurance market pricing. Yesterday, risk analysis firm Karen Clarke & Co estimated that insured losses from Hurricane Irma will total $25bn, with $18bn of that figure resulting from damage in the US and $7bn in the Caribbean. The figures include losses to buildings, other insured structures, contents, business interruption and autos, but do not cover crop losses or those suffered by the US’s National Flood Insurance Program (NFIP). Insured US loss estimates from Hurricane Irma fell as the storm headed west, shifting away from the densely-populated Miami area, and reduced to a category 1 storm. Air Worldwide said Monday that Hurricane Irma could cause up to $40bn of insured losses in the US, with a bottom-end prediction of $20bn. It estimates costs of $15bn in the Caribbean. The catastrophe modelling firm’s insured loss estimate for the US reduced from a maximum $50bn figure released on Saturday. RMS’s latest update says there is a 10% chance of insured wind losses from Hurricane Irma exceeding $60bn. Its predictions also fell as the storm avoided the most densely populated areas of Florida. RMS’s estimate does not include losses from storm surge or post-event amplification. The firm said storm surge could increase insured losses by as much as 30% in some scenarios, and post-loss amplification of a complex storm like Irma could see the bill rise by another 15%. The share price of insurers exposed to Hurricane Irma rose as the worst fears over its impact were avoided. Hurricane Irma battered a string of Caribbean islands after first making landfall in Barbuda on 6 September. The storm made landfall on Cuba’s northern coast as a category 5 storm on Friday and weakened to category 3 as it interacted with land throughout the day. It re-intensified to a category 4 storm as it turned north toward Florida on Saturday night. Insurance and reinsurance industry experts meeting at the Rendez-Vous de Septembre in Monte Carlo this week, said they expect losses from Hurricane Irma and Harvey to hit the sector’s earnings. But most do not believe the losses will radically impact the sector’s capital base and shift long-running soft market conditions. “We don’t see this [Irma] as a market-turning event,” said Brian Schneider of Fitch Ratings. “Pricing is not likely to respond,” he added. According to Robert DeRose, senior director at AM Best, the two storms are likely to translate into reinsurance underwriting losses for the year and cause a small loss of capital. His firm said that $75bn of insured losses would result in an average industry-wide combined ratio of 106% for 2017. This compares with 95% in 2016. AM Best anticipates that third-quarter and annual earnings for most public commercial segment companies will be adversely affected by the “one-two punch” of Hurricanes Harvey and Irma. For rated companies with significant concentrations in Florida and nearby states the effect may be more substantial, the ratings agency said. “AM Best expects the majority of reinsurers to incur losses from this event, although the ultimate financial impact will depend on the storm track and the damages inflicted. Should Hurricane Irma’s impact amount to an insured industry loss above $75bn, the reinsurance sector likely is to incur a meaningful underwriting loss for the full year and experience a modest loss of capital,” it explained. Speaking at the Rendez-Vous de Septembre, Torsten Jeworrek, board member at Munich Re, said Irma will be a “major event” for the insurance industry. Mr Jeworrek noted that Munich Re is not heavily exposed to hurricane risk in Florida because it “is not an attractive state in terms of price and margins”. He estimates insured losses from Hurricane Harvey at between $20bn and $30bn. According to RMS, insured loss estimates from Hurricane Harvey have risen to between $25bn and $35bn, and could be as much as $40bn. Total economic losses are running three times higher at between $70bn and $90bn. The estimates include losses from wind, storm surge and inland flooding from the category 4 hurricane that held over Texas for a week before moving on to Louisiana. RMS said the estimate also includes gross losses of $7bn to $10bn incurred by the NFIP. Analysis from AM Best shows that approximately $12.5bn of catastrophe bonds are exposed to Hurricane Irma, with losses from the disaster set to test investors’ future appetite for such risk. The firm also said that if insured losses from Hurricane Irma top $75bn they would alter pricing in the Florida property catastrophe reinsurance market, but loss estimates suggest this figure is unlikely to be reached. AM Best said recent growth in alternative capacity has contributed to an abundance of reinsurance capacity during the past five years, but an active hurricane season could affect investors’ future appetite for this segment. It believes losses from Hurricane Irma could help to change the behaviour of traditional reinsurers and the use of alternative capital instruments. “One potential impact that might emerge is a change in behaviour of traditional reinsurers and the use of alternative capital instruments, including catastrophe bonds, collateralised reinsurance programmes, sidecar vehicles and insurance-linked securities funds,” said Asha Attoh-Okine, associate director at AM Best. Despite most observers not expecting losses from Hurricane Irma and Harvey to shift global reinsurance and insurance market conditions, Swiss Re believes the recent catastrophe losses will be sufficient to stabilise reinsurance pricing.

Irma set to cost insurance industry less than initially feared and unlikely to shift market

Want to read this article?

Read Next

Taiwan earthquake claims unlikely to cause capital event

Market softening could move towards further rate cuts for downstream energy buyers

Q1 2024 records $20bn in nat cat losses: Gallagher Re

AM Best warns of insurers’ growing reserve risk

IFRIMA mourns the death of board member Jorge Luzzi

Taiwan earthquake claims unlikely to cause capital event

Market softening could move towards further rate cuts for downstream energy buyers

Q1 2024 records $20bn in nat cat losses: Gallagher Re

AM Best warns of insurers’ growing reserve risk

IFRIMA mourns the death of board member Jorge Luzzi

Want to read this article?

Read Next

Taiwan earthquake claims unlikely to cause capital event

Market softening could move towards further rate cuts for downstream energy buyers

Q1 2024 records $20bn in nat cat losses: Gallagher Re

AM Best warns of insurers’ growing reserve risk

IFRIMA mourns the death of board member Jorge Luzzi

Related Articles