Losses relating to natural catastrophe events that have occurred thus far in 2018 are likely to have only a “limited impact” on reinsurers, with primary insurers and the U.S National Flood Insurance Program (NFIP) expected to bear the majority of the costs, according to a recent report by S&P Global Ratings.
Worldwide natural catastrophe losses were also lower during the first half of 2018 than in the same period for 2017, with Munich Re putting total insured losses at $17 billion for H1 2018 and $25.5 billion for H1 2017.
Overall, S&P said that year-to-date combined catastrophe losses won’t materially affect the reinsurance sector’s normalised earnings or capital, although the impact on individual reinsurers may vary.
“We believe the losses from the Hawaiian tropical storm, Kerala floods, and Northern California wildfires will have a limited impact on reinsurers’ earnings, as the bulk of these insured losses should be borne by primary insurers and the NFIP (for U.S. flood-related losses),” said S&P Global Ratings Credit Analyst Saurabh Khasnis.
Hurricane Lane caused widespread flooding and landslides across the Hawaiian Islands in August, bringing wind speeds of 160mph and up to 50 inches of rain to some areas despite being downgraded to a tropical storm during its approach.
However, S&P believes the majority of the damages from Lane will be covered by the NFIP, as well as by primary insurers to the extent the flood is a covered peril, which is not generally the case for homeowners policies in Hawaii.
Other significant losses will include the flooding in the State of Kerala in India, which is likely to cause economic damage of at least $3 billion, and the destructive Carr and Mendocino Complex wildfires that burnt through Northern California during late July and early August.
S&P said that, under a scenario of a 1-in-10 year aggregate loss experience for the top 20 gloval reinsurers, estimated losses will be about $21 billion, which, while higher than the annual catastrophe budget of about $11.4 billion for 2018, are expected to be an earnings event.
Losses from the catastrophes would contribute to the triggering of the aggregate limits under the reinsurance covers to the extent that those, in combination with other nat cat losses throughout the year, could reach the trigger point for these contracts, S&P explained.
