Financial analysis firm Demotech has stated that it believes all the insurers it reviews are capable of comfortably dealing with losses from Hurricane Michael, due to their robust capital and reinsurance programs.
Hurricane Michael made landfall in the Florida Panhandle on 10 October as a Category 4 storm with wind speeds of up to 155mph, making it the strongest hurricane to ever hit the region and the strongest to hit the U.S since Andrew in 1992.
Demotech said that estimates of insured property damage, excluding flood losses, range up to $15 or $20 billion, although this is much higher than the initial estimates from most catastrophe modellers.
AIR Worldwide put insured losses at between $6 billion and $10 billion, while Karen Clarke & Co. said $8 billion and CoreLogic recently revised its range to between $3 billion and $5 billion.
“The estimates of insured damage caused by Michael are staggering. However, those estimates are applicable to the entire industry,” said Sharon Romano, Vice President and co-founder at Demotech.
“We do not review all carriers impacted by Michael,” she added, “however, the carriers reviewed and rated by Demotech purchased, in the aggregate, more than $28 billion of first event catastrophe coverage. Despite the devastation, as of this date, we believe that every carrier that Demotech reviews has the capital and the reinsurance necessary to respond to Hurricane Michael.”
Joseph L. Petrelli, President and co-founder at Demotech, also commented: “The carriers that we work with purchase reinsurance at unprecedented levels. We did not rate any of the insurers that failed due to Andrew; however, we studied the 20 liquidations that (then) Commissioner Gallagher had to address. The lesson learned was ‘buy more reinsurance’. Our clients strive to serve Floridians. They know that requires a rigorous reinsurance program.”
Demotech’s comments echo the sentiments of other analysts, such as Willis Towers Watson, who claimed that re/insurers will comfortably absorb losses from Michael; KBW, who said that losses won’t be overly disruptive; and S&P, who asserted that the Michael will be an earnings event rather than a capital event.
“In 1996, the State of Florida Office of Insurance Regulation and the state residual market mechanism initiated an effort to depopulate the residual market,” continued Petrelli. “The depopulation effort included legislation to permit the State to offer financial incentives to insurers.
“From that time, Demotech has reviewed and rated approximately 50 Florida domestic insurers each year. Our team of experienced, credentialed professionals requires a rigorous, horizontal and vertical reinsurance program as part of our review process.”