Reinsurance News

CoreLogic estimates insured wind and surge loss from hurricane Ian up to $47bn

30th September 2022 - Author: Pete Carvill

CoreLogic has estimated that the insurance and reinsurance industry losses from Hurricane Ian could reach $47bn.

The firm said that its analysis indicated losses arising from the hurricane could land between $22bn and $32bn, with additional storm surge losses in Florida of another $6bn to $15bn. It also said that this is the costliest Florida storm since Hurricane Andrew thirty years ago.

Tom Larsen, associate vice president for hazard and risk management at CoreLogic, said: “Hurricane Ian will forever change the real estate industry and city infrastructure. Insurers will go into bankruptcy, homeowners will be forced into delinquency and insurance will become less accessible in regions like Florida.”

Hurricane Ian made landfall on Wednesday as a major Category 4 storm with maximum sustained winds of around 155 mph near the Cayo Costa area.

It brought widespread flooding, property damage, and power outages, leaving residents stranded as storm surges flooded communities.

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2.5m residents in Florida have been left without power, and 12- to 18-foot storm surges have been reported near Fort Myers, damaging hospital roofs and pointing to significant losses that should reinforce reinsurance demand while eroding reinsurance capital.

If forecasts hold steady, CoreLogic expects Hurricane Ian to continue bringing flash flood devastation across Florida and potentially into South Carolina and Georgia. Residents will experience standing water and sewer backups for days, slowing immediate recovery. Significant infrastructure damage will also impede local governments’ ability to respond.

CoreLogic anticipated that recovery from Hurricane Ian will be slow and difficult, citing inflation at a 40-year high, interest rates nearing 7%, and labour and materials high in demand.

Florida’s real estate market was healthier than average prior to Hurricane Ian, according to CoreLogic economists.

Selma Hepp, interim lead of the Office of the Chief Economist at CoreLogic, said: “In the second quarter of 2022, Florida posted one of the highest home equity gains in the U.S., with an average of $100,000 in equity per homeowner. Florida also had the highest home price gains in July. Gains in equity and record declines in loan-to-value ratios will provide many Florida homeowners with a financial buffer in case economic conditions worsen, as is typically the case following natural catastrophes.”

CoreLogic said its analysis includes insured loss from damage to residential homes and commercial properties, including contents and business interruption and does not include broader economic loss from the storm.

These latest estimates are a big jump from figures released by RMSI a few days ago that posited that Hurricane Ian was likely to cause $18bn of loss (not included was the storm surge). Its initial assessment indicated that 460,000 residential, commercial, industrial, educational, and other essential buildings were damaged. 410,000 of these buildings were, RMSI estimated, residential.

RMSI followed up those estimates a few days later with an update saying that losses are likely to reach $65bn in the state.

Other estimates, from KBW, put the insured loss in the $30bn range.

The impact is already being felt on the industry, with Neptune Flood saying in recent days that it has seen a four-fold increase in quotes above its normal volume.

Warnings have already been sounded, too, about the state’s nascent reinsurance market. A few days ago, AM Best said that Hurricane Ian would test the sector in Florida that was created in recent months by state governor Ron DeSantis as the Reinsurance to Assist Policyholders (RAP) Program and is designed to provide $2bn of coverage for hurricane losses.

The reinsurance program’s $2bn coverage limit is for all participants in aggregate.

AM Best said in its commentary: “Hurricane Ian will be the first test of this new program. Landfall in the Tampa/St. Petersburg area would have a significant impact, given the concentration of population in the area and the number of higher-value homes, so the potential for losses is high. Earlier this year, CoreLogic estimated $276bn at risk to wind losses and $126bn at risk to storm surge just on single-family homes, with additional losses possible on multi-family dwellings and commercial property.”

It added: “Although insured losses are always lower than total losses, given uninsured or underinsured properties and some losses are covered by National Flood Insurance Program (NFIP), Ian still has the potential to be a significant industry event. Some private insurers cover flood, but the NFIP has the highest penetration. Insured losses from Hurricane Andrew (1992), which made landfall as a Category 5 storm in South Florida, came to $15.5bn, which in today’s dollars would be approximately $30bn. Although the latest track shows Ian making landfall south of Tampa, landfall in the populous area around the city could lead to insured losses as high as those due to Hurricane Andrew.”

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