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Hurricane Florence losses will be manageable, say re/insurance analysts

14th September 2018 - Author: Matt Sheehan

Analysts are confident that re/insured losses from Hurricane Florence will be manageable, with many firms now expecting losses to fall in the lower ends of initial estimates as the category 1 storm continues to weaken.


Eye of Hurricane Florence from the International Space Station. Source: ESA/NASA–A. Gerst

Analysts from both Goldman Sachs and S&P Global Ratings said they believe Florence will be “an earnings event and not a capital event” based on most initial estimates, which put losses at between $8 billion and $20 billion.

J.P. Morgan has now lowered its loss range to between $8 billion and $15 billion, while CoreLogic’s most recent estimate is far more conservative at between $3 billion and $5 billion, although this does not account for losses due to inland flooding.

Peel Hunt also calculated that, even for a Realistic Danger Scenario (RDS) with insured losses of $40 billion, Florence would have a manageable impact of between 0% and 3% on the tangible net asset value (TNAV) of Lloyd’s insurers in its coverage universe.

Whilst officials have warned that flood damage from the weakened Hurricane Florence could still be catastrophic, analysts noted that flooding in the U.S is only covered by the private market under commercial insurance and not homeowners’ insurance.

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Thus, while Florence could still rank among the top 10 most costly U.S hurricanes due to inland flooding, the National Flood Insurance Program (NFIP) is expected to absorb the majority of losses.

Most analysts agreed that losses for P&C re/insurers will average at about 1-2% of book value, with companies most exposed to Florence including RenaissanceRe, Travelers, Chubb, Allstate, Arch Capital, Berkshire Hathaway, and Progressive, according to J.P. Morgan.

Additionally, there was consensus that a majority of insured losses will likely end up with the insurance sector rather than reinsurance, given current loss estimates and the prominence of national insurers in affected regions that tend to retain a higher level of catastrophe losses.

Nevertheless, reinsurers will still experience considerable losses from Florence due to the highly syndicated nature of the property catastrophe business, with the potential for losses to also impact alternative capacity on both a reinsurance and retrocessional basis, according to A.M. Best.

Other reinsurance exposures may include the NFIP’s reinsurance program, as well as the FloodSmart Re catastrophe bond that was issued by the NFIP earlier this year.

Overall, analysts considered the vast majority of re/insurance companies to be sufficiently capitalised to absorb heavy catastrophe losses, and did not expect any substantial rating actions or price hardening to result from Hurricane Florence.

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