Parts of Hawaii have experienced flash-flooding and landslides as downgraded Category 3 Hurricane Lane approaches the U.S state, bringing winds of 125mph (200km/h) and heavy rainfall, and causing reinsurance market exposure through aggregate contracts.
Lane continues to weaken as it draws closer to the Hawaiian islands, although its outer bands have already pummelled parts of Big Island with more than 30 inches of rain, and the Central Pacific Hurricane Center has warned that Lane may move very close to the main islands or cross land through Friday.
This would make Hurricane Lane the first major cyclone to make landfall in Hawaii in 26 years, following 1992’s Hurricane Iniki, which caused insured losses of $1.2 billion and economic damage of more than $3 billion.
The islands of Maui and Oahu are the next to be threatened by Lane, where similar levels of rainfall are expected (up to 40 inches), and where coastal flooding is a concern due to the threat of storm surge and high waves along the southern coasts.
Catastrophe risk modelling specialist CoreLogic said yesterday that more than 48,000 residential properties may be at risk of flood damage from Hurricane Lane, with total reconstruction costs expected to total around $8 billion in a worst case scenario.
Fitch Ratings has now added that it expects the main exposure for the reinsurance industry, if any, to be aggregate catastrophe treaties, which could pick up losses from Hurricane Lane and add them to other loss totals from throughout the year so far.
Favourably, Fitch noted that global reinsurers have experienced only modest catastrophe losses thus far in 2018, allowing the industry to replenish its capital following the record catastrophe losses from 2017’s Hurricanes Harvey, Irma, and Maria.
It added that there are several outstanding catastrophe bonds that include Hawaii in their exposure to hurricane/named storm risk, but that attachment points are typically high, meaning substantial losses would be required for the catastrophe bonds to respond.
These bonds also typically have per-occurrence triggers, meaning that any losses sustained earlier in the year from the Mount Kilauea volcano eruption would have no bearing on potential losses from Hurricane Lane.
Fitch said that it considers the companies with the five largest homeowners’ exposures to Hurricane Lane to be: “State Farm Group, Heritage Insurance Group (including Hawaii focused Zephyr Insurance Company), USAA Group and Allstate Insurance Group, as well as Honolulu-based insurer First Insurance Co of Hawaii (owned by Tokio Marine Holdings Inc.).”
“In commercial lines,” Fitch added, “when combining the statutory direct written premiums for inland marine, commercial multi-peril (non-liability), fire and allied lines, the companies with the largest market share in Hawaii include First Insurance Co. of Hawaii, American International Group, Inc., Allianz Global Risks U.S. Insurance Co., DB Insurance Co. Ltd. and Liberty Mutual Insurance Group.”
Analysts at Credit Suisse said the impact to primary insurers is not expected to be significant, however, with losses for every insurer under its coverage universe estimated at less than $100 million.
“AIG, which we do not cover, could see losses top $100m given it has historically been a sizeable participant in Hawaii’s private flood insurance market,” said Analyst Mike Zaremski.
He added: “At a $2bn statewide insured loss level, we estimate Progressive’s share of losses would equal $47m, which compares to our 3Q’18 catastrophe load of $170m. For Allstate, we estimate losses between $56-$102m.”
Credit Suisse also noted that automobile losses could significantly raise loss totals for insurers, and maintained that insurers are likely to face considerable flood losses even without a direct hit from Hurricane Lane.
“Of the roughly 5,000 private insurance policies purchased by Hawaiian residents, FM Global, AIG, and Swiss Re had upwards of 70% market share as of last year’s 2017 data. This is why we estimate AIG’s losses could top $100m, depending on the companies reinsurance purchasing,” Zaremski said.