The size of the hurricane Harvey loss estimate that Hiscox pre-announced yesterday could have a negative read-through for the commercial excess & surplus lines insurance underwriters, according to analysts at Credit Suisse.
Hiscox pre-announced a loss of around $150 million from hurricane Harvey’s impacts on Texas, with the company saying most of the losses would be through its reinsurance business and through primary insurance lines, including provision of flood coverage to homeowners and businesses.
Analysts at Credit Suisse said that the loss is higher than they would have anticipated for such a storm, based on previous catastrophe scenarios run for Hiscox, but add that this could be due to the flood component which they feel may largely be from commercial policies and excess & surplus lines business.
As a result the analysts believe that there will be a negative read-through for other insurers exposed to U.S. E&S business, particularly those picking up commercial flood losses from the sector.
Credit Suisse said that so far the non-standard insurance underwriters have been particularly quiet following hurricane Harvey’s landfall, adding that it expects these companies to take the largest share of the commercial loss from the storm.
The analysts note that Hiscox’s realistic disaster scenarios in the firms annual report shows a 1-in-80yr Gulf of Mexico hurricane event with an industry loss of $107 billion from which it expects to have a net loss of $178 million.
That’s only slightly higher than the $150 million estimate given for hurricane Harvey, which Hiscox said was based on an industry loss of $25 billion.
That suggests that Hiscox’s estimate is in the upper bounds, or that it is taking a significant hit due to the flood exposures.
The analysts also explain that other insurers including AIG, Chubb and XL all typically have hurricane losses that are multiples higher than Hiscox. In fact, those three insurers can take three to four times as large a hit as Hiscox in a typical storm year, so it will be telling if their estimates are that high.
Hiscox takes E&S commercial flood exposures in through the Lloyd’s market as well, and the market has been rife with rumours about commercial flood binders ever since Harvey hit which could also be a factor here.
XL is the insurer with the largest exposure to commercial business at Lloyd’s, according to Credit Suisse, so the company could be facing a significant impact if the E&S and commercial flood losses are as high as they seem, and if these binder rumours are proved to be accurate.