As hurricane Irma maintains its track towards the state of Florida, U.S., Fitch Ratings has warned of the potential impact the storm could have on the Florida insurance and reinsurance market.
Hurricane Irma is on track to hit Florida on Sunday morning, September 10th, 2017, potentially as a Category 4 storm with winds exceeding 130 mph. Some uncertainty remains about the intensity and track of the storm as it approaches the U.S. coastline days after battering parts of the Caribbean.
Overall, Fitch feels that the Florida insurance and reinsurance sector is “well equipped” to manage significant hurricane losses. However, should Irma result in an insurance industry loss of $75 billion or more, or should another major storm follow in its footsteps, some in the Florida market could “experience notable financial strain.”
While this scenario is extreme, Fitch feels that should it happen, Florida specialist property writers would likely experience the most severe financial strain, alongside some segments of the international reinsurance marketplace.
“Significant reinsurance losses could also impact catastrophe bonds and collateralised reinsurance structures,” warns Fitch.
The projected path of Irma makes it a very dangerous storm, and should it hit the Miami-Dade region it’s possible that losses exceed those experienced with Hurricane Andrew, the worst storm to hit the state, in terms of economic and insured losses, in modern memory.
Andrew resulted in an insured loss of just below $25 billion (in 2016 dollars), but Fitch highlights that since it struck, Florida’s population and coastal property exposure have increased significantly, meaning a similar storm would likely drive higher insured and economic losses.
In light of this, Fitch cites global reinsurer Swiss Re, which states that a storm following Andrew’s track would result in economic losses of between $80 billion and $100 billion, and insured losses of between $50 billion and $60 billion.
Furthermore, were Andrew to have hit Miami, so tracked 20 miles North of where it actually hit, insurance industry losses could range from $60 billion to $180 billion.
“Fitch believes if losses from Irma are ultimately at the higher end of current estimates, there could
be downward pressure on some reinsurer ratings. There is also a question if losses are so large that
they prompt an improvement in reinsurance pricing, which could help mitigate losses,” says Fitch.
With rates coming under so much pressure for a prolonged period across most reinsurance business lines, the industry has been waiting for a sufficient amount of capital to exit the space in hope this will turn the market from its soft phase. However, while Irma might well have the potential to drive losses sufficient to ignite a turn in the market, it could be extremely damaging for companies in the Florida market.
