Reinsurance News

Hurricane Harvey likely to be an earnings event and a reminder to the industry: KBW

25th August 2017 - Author: Luke Gallin

In light of Hurricane Harvey’s expected path towards Texas, with reports predicting the storm to intensify to a Category 3 storm as it makes landfall late Friday or early Saturday, analysts at Keefe, Bruyette & Woods (KBW) expect the event to remind re/insurers of hurricane risks as losses are likely to be an earnings event.

Hurricane HarveyHurricane Harvey is expected to be the strongest storm to make landfall on the U.S. coast in more than a decade, bringing storm surge, rainfall, flooding and strong winds to the state of Texas.

KBW expects the storm to result in most domestic P&C insurers and reinsurers trading down today, as the storm continues to intensify as it makes landfall, bringing sustained winds of between 111mph – 129mph.

“Depending on the storm’s strength at landfall, reinsurers could also face some exposure, particularly from regional cedents with lower reinsurance attachment points,” says KBW in a note on Harvey.

The report highlights the 50 insurers with the most direct cat-exposed 2016 Texas direct written premiums (DPW), which totals roughly $26.4 billion for the sector.

Catastrophe-exposed business lines include commercial and personal auto physical damage, CMP non-liability, homeowners/farmowners, fire & allied lines, inland marine, and private crop, explains KBW.

Pending further strengthening, which is expected, KBW expects the event to serve as a reminder to the re/insurance industry of the potential losses from a major hurricane, something that hasn’t occurred for more than a decade. Losses, says KBW are more likely to be an earnings event “than challenging most (re) insurers’ capital positions.”

But despite Harvey likely being an earnings event, many firms target their annual capital return pretty much in-line with their operating income, so even modest losses have the potential to challenge future years’ EPS estimates, explains KBW.

“We also think there’s enough capital both within the industry and on the immediate sidelines to preclude significant post-event rate increases,” concludes KBW.

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