With Hurricane Michael the latest in a string of medium-sized catastrophes to have impacted the re/insurance industry in 2018 it has by no means been a benign cat year, according to analysts at Peel Hunt.
Aftermath of hurricane Michael in Mexico Beach, Florida. Source: AP
Swiss Re estimates up to $18 billion of insured losses in H1 2018, with H2 adding an estimated $30 billion to that figure. This brings the annualised 2018 cat loss close to $50bn, in line with the 10 year average.
Lloyd’s insurers collectively trade at a premium above underlying returns although analysts continue to believe the risk reward of LRE is the most attractive long term.
The dividend yield of the sector is a low 2% and, as cat losses accrue, the scope for special dividends at the end of the year diminishes.
Q4 kicked off with Michael, a Category 4 hurricane that made landfall in the North Florida panhandle. The area was materially affected by a combination of harsh winds and flooding.
The area is exposed to $19bn of property value from storm surge damage alone according to Corelogic, with AIR estimating up to $10 billion of insured losses.
Whilst this is significant, Peel Hunt states that exposures are below a Miami Dade or Pinellas landfall, hence would be absorbed within the reinsurance industry’s earnings and capital base.
Whilst Michael is not a major loss for the industry it follows an active Q3. In aggregate, analysts estimate that major cat losses could reach up to $30 billion in insured losses during the second half of the year.
This compares with an average of $20 billion during H2 over the last 10 years. And we still have another month of the hurricane season to go.
Although insured losses are well below the $170 billion levels seen in 2017, Peel Hunt states that this is by no means a benign cat year.
Accordingly, analysts say cat budgets will have been considerably used up during Q3 and any further losses in Q4 will spill over and eat into earnings.
In addition, insurers will in some cases need to reinstate their reinsurance protection for the last quarter of the year.
