Insured losses resulting from Hurricane Florence may dampen third-quarter earnings but will generally be comfortably absorbed by the property and casualty (P&C) re/insurance sector, with no foreseeable impact on the overall pricing environment, according to Moody’s.
Hurricane Florence made landfall as a Category 1 storm in North Carolina on Thursday night, bringing sustained wind speeds of around 80mph, storm surge up to 10 feet high, and record rainfall of up to 40 inches.
Moody’s noted that, while catastrophe-affected regions could experience higher insurance rates following Florence, the strong credit quality across municipal and infrastructure sectors will mitigate the impact of losses,
Insured losses are likely to be split among homeowners, commercial property and business interruption, although flood damage is typically not covered by U.S homeowners’ policies, which could become a point of dispute if the immediate cause of loss (wind versus flood) is unclear.
Moody’s expects large national insurers to retain most of their losses, but acknowledged that some reinsurers and insurance-linked securities (ILS) investors could face losses on contracts with low attachment points.
Additionally, reinsurers may be exposed to losses through the $1.46 billion of reinsurance cover purchased by the National Flood Insurance Program (NFIP) this year, although potential losses will depend on the extent of the flooding and the take-up rates for flood insurance in affected areas.
This supports a recent analysis by The Buckingham Research Group, which suggested that just 15% to 20% of Hurricane Florence exposure might be passed on the reinsurers, based on a $10 billion insured loss.
Moody’s added that Hurricane Florence will pose near-term challenges to building materials companies with exposure in the Carolinas as storm surges and lingering rain will interrupt shipping volume in the region.
However, its credit view of the sector remains unchanged as challenges are likely to be counterbalanced by demand for storm-related reconstruction projects in 2019 and 2020.