The CEO of Citizens Property Insurance has said his best estimate for losses arising from Hurricane Ian to be around $40bn.
Keefe, Bruyette, & Woods (KBW) says in a new note that it sat with Barry Gilway, CEO of Citizens Property Insurance, to discuss the impact of Hurricane Ian on the Florida Homeowners Insurance market, which it called ‘already difficult’.
It said that Gilway told it that he expected insured losses to fall closer to the lower end of the £31-$74bn range estimated by catastrophe modelers. However, KBW say that losses will be driven higher by the state’s ‘highly litigious environment’.
It wrote: “Citizens’ own updated $2.3-2.6bn loss estimate only contemplates current levels of litigation activity, and Mr. Gilway expects litigation to increase over time. We note that Citizens’ $2.3-2.6bn loss estimate isn’t a good proxy for statewide industry losses given Hurricane Ian’s highly concentrated losses, where Citizens’ market share is below its statewide market share of 13-15%.”
Gilway’s estimate is at the low end of other valuations in recent weeks. About a fortnight ago, risk-modelling firm KatRisk estimated that the combined costs from Hurricane Ian would fall between $29.9bn and $62.1bn.
The firm is the risk modeller for the National Flood Insurance Program (NFIP) run by FEMA. The high figures it has put out in this statement suggest that the NFIP reinsurance could attach and pay out at least some of its lower layers.
Citizens was created by the Florida Legislature just over twenty years ago as a non-profit, tax-exempt government entity to provide property insurance to eligible Florida property owners unable to find coverage in the private market. It is funded by premiums, but state law also requires that Citizens levy assessments on most Florida policyholders if it experiences a deficit in the wake of a particularly devastating storm or series of storms. In August, it surpassed 1m policies for the first time since 2013. As we reported back then, it has added on average 32,000 new policies to its portfolios every month through 2021.
However, back in June, it was looking set to go through the 2022 hurricane season with less reinsurance protection in place than it would have liked, as sources report that only 36% of its risk transfer program was filled.
As KBW has now written: “Gilway also suggested (we fully agree) that with $14.8bn of written premiums supported by only $3.9bn of private market policyholders’ surplus and Citizens own $4.1bn of (post-Ian) surplus, the current Florida Homeowners market is unsustainably reliant on reinsurance. Gilway expects very limited available reinsurance capacity below the Florida Hurricane Catastrophe Fund (FHCF) and Reinsurance to Assist Policyholders (RAP) layers, which represent about $17bn and $2bn of limits, respectively, with the relatively new RAP layer sitting below the FHCF layer. In recent years, reinsurers have increasingly withdrawn from Florida, reflecting consistently inadequate pricing and worsening social inflation driving unacceptable underwriting results. Swiss Re recently announced a declining US property-catastrophe appetite that we think similarly includes Florida. Gilway also believes that absent significant litigation reform, national carriers are very unlikely to return to Florida in any significant way.”
Other estimates put out in recent days around Hurricane Ian include that of Verisk, which says Hurricane Ian could drive a $57bn insured loss. A poll run by Reinsurance News suggested that the hit to the re/insurance industry will go over $50bn.
Other estimates have put the losses (according to JP Morgan) at $25bn, $40bn (according to Fitch), and up to (according to KCC) $63bn. Previous analysis by GlobalData did not give an estimated figure, but said that incurred losses in US fire and natural hazards may hit ‘near-record levels’ due to Hurricane Ian.
CoreLogic, about a week ago, put estimated re/insurance losses due to Hurricane Ian at up to $53bn.
