Reinsurance News

Hurricane Delta losses expected to fall within cat reinsurance limits

12th October 2020 - Author: Luke Gallin

Hurricane Delta came ashore in the region of Creole, Louisiana as a Category 2 storm at 18:00 local time on Friday October 9th, making it the 10th named storm to make US landfall so far in 2020.

Hurricane Delta

(NASA via AP)

Following its impact on Mexico’s Yucatan Peninsula early last week, hurricane Delta tracked into the Gulf of Mexico before bringing sustained winds of 100 mph to Louisiana, hitting an area that continues to recover from the impacts of Hurricane Laura in late August.

According to news reports, more than 600,000 power outages were reported across Texas, Louisiana, and Mississippi early Saturday afternoon, with almost 11 million people believed to be in the storm’s path. In fact, some reports claim that at one stage during the storm, as many as 700,000 properties were reported without power.

Although Delta was a weaker storm than Laura, which arrived with Category 4 hurricane status, reports note that it brought a significant amount of flooding to areas devastated by Laura, including the city of Lake Charles.

Once Delta moved onto land it weakened significantly and by Saturday morning had transitioned into a tropical depression. However, forecasters warned that there remains a threat of heavy rain, storm surge and flash floods across parts of Texas and Mississippi as the storm’s remnants moved further inland.

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According to reports, property damage to roofs has been widely reported, and it’s likely that some of these had been weakened previously by Laura. Additionally, it’s believed that Delta damaged equipment at numerous oil refineries in the region, resulting in disruptions to production in various locations.

With Delta battering a region in the midst of recovering from Laura’s impacts, it could pose a challenge for insurance and reinsurance industry loss adjusters when determining which storm caused which damage.

Analysis by ratings agency A.M. Best warned that Delta poses a threat to low-lying areas despite the storm being weaker than Laura.

Prior to landfall, the rating agency said that it expects total losses from Delta to be within established catastrophe reinsurance program limits for most of the entities it rates. Adding that this is supported by the current more favourable reinsurance market conditions, which have served to help strengthen carriers’ reinsurance programs via the purchase of “more robust vertical and horizontal limits with relatively low retention.”

Even for the smaller companies with lower levels of capital, says AM Best, prudent retention levels should ultimate result in losses having more of an earnings impact than a capital hit. And, while AM Best doesn’t anticipate Delta to lead to a significant amount of rating actions, it notes that reinsurance programs that respond differently to what is expected may see some ratings pressure.

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