Hurricane Ian a potential capital event for reinsurers, says KBRA

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Analysts at KBRA have said that Hurricane Ian could result in a capital impact to some reinsurers, depending on the ultimate magnitude of their losses from the event.

Hurricane Ian over the Gulf of Mexico at 4:26pm on September 27th. Source: NOAA via AP

The firm said that “all insurers with exposure” in the areas affected by Ian will experience “at least an earnings impact,” but stressed that this was the “minimum” expectation and that a capital event remains a possibility for some firms.

“The storm could be a capital event for reinsurers as well, depending on the magnitude of the loss,” KBRA added.

While not directly comparable due to differences in measurement scope, some estimates of economic damages from Hurricane Ian are as high as $100 billion, including uninsured properties, damage to infrastructure, and other cleanup and recovery costs.

The scale of market losses from Ian is expected to further complicate the upcoming 1/1 reinsurance renewal season which was already challenged by supply and demand issues, persistent inflation, increased cat losses, asset write-downs, and pullback from the insurance-linked securities (ILS) market.

KBRA also notes that the negative impacts from Ian may further constrain capacity and contribute to further increases in prices to the detriment of reinsurance purchasers looking to reduce retentions and buy more coverage at the top of their cat towers.

Currently, KBRA believes its rated insurers have appropriate cat reinsurance coverage in place and is not aware of any instances where losses are expected to exceed the top layers of coverage.

However, it warns that the wind (covered by homeowners’ insurance) versus flood (not typically covered by homeowners’ insurance) component impacts will be challenging to sort out and the debate is expected to contribute to elevated levels of litigation.

While KBRA expects near-term impacts to its rated entities with stable outlooks to be minimal, companies currently on ratings watch or a negative outlook have a higher potential for a rating downgrade, the firm added.

Current industry loss estimates from RMS suggest that insured losses from hurricane Ian will land somewhere between $53 billion and $74 billion, with a best estimate level of $67 billion, while Karen Clark & Company’s predicts a $63 billion private insured loss event.

Data analytics and risk assessment firm Verisk has also estimated that Ian could drive a re/insurance industry loss of between $42 billion and $57 billion, while CoreLogic has the lowest top-end estimate with a loss range of $31 billion and $53 billion.

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