Analysts at Stonybrook Capital have warned that the market effects from hurricane Ian will be “profound and widespread,” with all-in re/insured loss and loss adjustment expenses (LAE) having the potential to come in significantly above the $75 billion mark.
According to Stonybrook, in nominal dollars, damage caused by hurricane Ian is the largest-ever insured loss event anywhere globally, and will go down as one of the top U.S. events of the last century for the risk transfer space – likely to add more than 10 points on the national direct loss ratio.
Bumping up the national direct loss ratio by this amount places hurricane Ian behind only the 2001 terror attacks, and 2005’s hurricane Katrina, and in-line with, or perhaps a bit higher than the 1938 New England hurricane, says Stonybrook.
“As this becomes recognised, the market effects will be profound and widespread,” say analysts.
As noted by analysts, industry loss estimates from modellers have taken different perspectives, including or excluding certain coverages. However, each of the modellers have chosen to exclude LAE, as well as some non-modellable exposures, such as Marine.
Of the current estimates out in the market, Karen Clark & Company’s $63 billion private insured loss estimate takes the widest view, with the U.S. portion based on an estimate of insured wind, storm surge and inland flood losses, as well as accounting for impacts of excess litigation in Florida, and demand surge. The total estimate also includes $200 million of insured losses in the Caribbean, but excludes losses to the NFIP, offshore properties and boats, and LAE.
RMS has estimated that insured losses from hurricane Ian will land somewhere between $53 billion and $74 billion, with a best estimate level of $67 billion. This estimate excludes LAE, litigation, auto, marine, and NFIP losses.
Data analytics and risk assessment firm Verisk has estimated that Ian could drive a re/insurance industry loss of between $42 billion and $57 billion. This estimate excludes LAE, litigation, auto, inland flooding, and NFIP losses.
CoreLogic’s $31 billion and $53 billion range has the lowest top-end, and excludes LAE, litigation, and auto.
According to Stonybrook, LAE has generally been notably higher in larger events, and analysts understand that loss locations that are further from other, unaffected states, have increased costs of adjusting and repairs to reflect the longer travel distances.
“We estimate that Ian’s property wind losses will cost over 20% to adjust and it will be at least moderately elevated for other coverages,” say analysts.
As a result, Stonybrook believes that the all-in insured loss and LAE is above, and perhaps significantly, $75 billion, and that the loss represents more than 10% of U.S. 2022 property and casualty (P&C) industry direct premiums.
Stonybrook also breaks down its $75 billion+ industry loss estimate for Ian. Of the total, $40 billion+ relates to Florida residential wind, and $15 billion+ to Florida Commercial wind.
Florida auto losses are estimated at $3 billion+, private flood losses in the state at $6 billion+, with losses in South Carolina and further north estimated to be at least $2 billion. Additionally, Stonybrook sees insured losses from Ian in the Caribbean of at least $250 million, and losses to other perils and coverages from the event of $3.5 billion+.
It’s no secret that Florida’s property insurance market was in turmoil prior to hurricane Ian’s landfall. With property claim litigation and fraud remaining a real issue for the state, alongside rising loss costs, the ability of many domestic insurers to operate has been challenged. Further, the situation has been exacerbated by the lack of willing reinsurance capacity as players look to lower the volatility of their books, with some exiting the property cat space entirely.
“The Florida market is uniquely dependent on many domestic or coastally-focused regional carriers, with much lower relative resources than the large national carriers, and generally poorer underwriting results for several years. Many are now in jeopardy,” warn analysts.
“They have so far been backed by state sponsored plans, but which are now also deeply drained by losses. The Florida Hurricane Cat Fund and the new RAP reinsurance program may have been exhausted for this year. Another big event before next June would not have the same protection for insurers as they received in Ian and could have even bigger net costs to the coastal carriers.(Nothing ominous is currently being tracked.),” they add.
According to Stonybrook, the average domestic firm has a significant double-digit loss of capital. The company expects to see more downgrades below the “secure” level as a result of Ian.
In terms of reinsurers, Stonybrook estimates that on average, global reinsurer portfolios will lose close to a year’s earnings after-tax, with Ian described as a “very bad earnings event” for many, and a capital hit to others.
“They will critically assess their catastrophe appetites worldwide. Big national US carriers are generally well-protected by diversification and stronger reinsurance programs. Personal lines focused groups will report a loss at their catastrophe reinsurance retention, although some have Florida subsidiaries that could be quite stressed unless recapitalized. Commercial focused groups may be even less exposed, unless they have a reinsurance or E&S Property arm,” say analysts.
Stonybrook’s analysis also finds that as was the case with Katrina, it’s likely that 100% of 2022 occurrence cat excess-of-loss retrocessions sustained total losses, with the catastrophe bond market also set to experience a record loss from hurricane Ian.
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