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Combined Irma loss creep exceeds $1bn for Floridian insurers

16th August 2018 - Author: Luke Gallin

The devastation caused by hurricane Irma continues to impact Floridian insurance companies, with a number of market players increasing their loss reserves as creep from the storm continues.

Hurricane Irma imageRecorded as the strongest storm to exist in the open Atlantic region, hurricane Irma devastated parts of South U.S., especially Florida, as well as parts of the Caribbean.

Highlighting just how impactful the storm was, and also how complex and ongoing the claims process can be for such an event, a number of insurance companies have, in recent times, reported loss creep from the storm, with some announcing significantly higher figures when compared with initial estimates.

For example, Federated National (FedNat) announced recently that its latest gross loss figure for Irma was $630 million, which is a 103% increase from the $310 million gross loss the firm announced in its third-quarter 2017 earnings.

Commenting on the event during FedNat’s Q2 2018 earnings call, Chief Executive Officer (CEO) and President, Michael Braun, said: “In terms of Irma, it was a big storm in the sense of the geographic footprint that it had was over the entire state. Once again, we had claims in about 60 of the 67 counties in the State of Florida.

“But the storm was a big event not only for FedNat and for Monarch, but also for the industry, and, I’m sure you’ve seen some of the industry numbers have moved up in the six months as well.”

At the same time, the CEO of Florida headquartered U.S. property and casualty (P&C) insurer, Heritage Insurance Holdings, Inc., said recently that the firm’s Irma gross loss is approaching $800 million, with the firm reporting an initial, expected gross loss of $388 million in November of last year.

Similarly, United Insurance Holdings (UPC Insurance) revealed during its second-quarter 2018 earnings call that it’s increased its gross reserves for hurricane Irma by 56%, to $623 million, driven by loss creep during the first-half of 2018.

And, while smaller than that witnessed by FedNat, Heritage, and UPC Insurance, Florida-domiciled primary insurer, Universal Insurance Holdings, announced towards the end of April that it’s to pass an additional $50 million of Irma loss creep to its reinsurance panel, taking its total Irma loss to $502 million.

The rising loss total from hurricane Irma is being driven by assignment of benefits (AOB) related costs, loss adjustment expenses and adjusting costs, as well as other claims inflationary causes, and the fact insurers increase their own views of the loss in relation to re-opened claims.

Combined, the latest Irma loss creep reported by FedNat, Heritage, UPC Insurance, and Universal Insurance totals more than $1 billion, and, it’s important to remember that these aren’t the only Florida-focused insurers or reinsurers, suggesting the creep is likely higher.

As noted by some of the insurers mentioned above, reinsurance protection has played a vital role in the aftermath of hurricane Irma, protecting the balance sheets of primary players during a testing time for the marketplace, which was exacerbated by the softened state of the marketplace.

However, as the loss creep has persisted through 2018, a number of industry loss warranty (ILW) contracts providing retrocessional reinsurance are set to pay out following the updates to third-party data providers’ estimates for Irma losses, as noted by our sister publication, Artemis.

After more than a decade without a major (Category 3 or higher) hurricane making landfall in the U.S., hurricane Irma served as a reminder to the insurance and reinsurance industry that loss events of this nature are a matter of when, not if.

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