As Tropical Storm Isaias is forecast to rapidly intensify into a Category 2 hurricane over the Gulf’s extremely warm waters, with landfall expected along the northern Gulf Coast late Friday or early Saturday, Gallagher Re said the event is unlikely to meaningfully affect upcoming January 1 reinsurance renewals given ample market capital.
While some weakening is expected ahead of landfall as wind shear increases, Gallagher Re’s new Event Commentary said Isaias is still expected to bring hurricane-force winds, 5 to 7 feet (1.5 to 2.1 meters) of coastal storm surge above normally dry ground, flooding, heavy rainfall, and the threat of tornadoes in the storm’s outer bands across parts of Alabama, the Florida Panhandle, Mississippi, and Louisiana.
However, according to the firm, at this stage, there also remains “ample uncertainty” regarding where Isaias may ultimately make landfall and at what intensity.
Gallagher Re continued, “Assessing exposure concentrations along the north-central Gulf Coast and analysing historical hurricane landfalls in the Category 1 to Category 2 range in this part of the United States suggests insured losses (including private insurance carrier and National Flood Insurance Program gross claims payouts) reaching into the low- to mid-single-digit billions (USD).”
The firm explained that losses at this level would likely be driven by a combination of wind damage, storm surge inundation, inland flooding, and tornado touchdowns commonly found in the outer bands of tropical systems, with the final industry loss highly sensitive to the storm’s track, size, forward speed, and impact duration
“Given the substantial amount of available global reinsurance capital and the relatively modest expected loss magnitude relative to industry capacity, this event is unlikely to meaningfully affect upcoming January 1 reinsurance renewal discussions,” Gallagher Re’s Event Commentary said.
Meanwhile, the overall economic cost, including underinsured and uninsured losses, would likely tally several billion (USD) higher than insured losses, as per the firm.
This differential is expected to be heavily linked to damage caused by storm surge and inland rainfall-driven flooding, both of which have reportedly historically generated significant levels of uninsured loss across the Gulf Coast region.
Gallagher Re went on, “Current NFIP take-up rates in coastal Alabama, Mississippi, and the Florida Panhandle generally range from roughly 10% to 25% depending on the county or locality but quickly diminish to just 2% to 5% or less across many inland counties.
“As a result, a substantial portion of water-related residential and commercial property damage may fall outside the insurance sector, contributing to a notable protection gap and elevating the broader economic impact on households, businesses, and state / local government recovery costs.”
