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Hurricane Ida loss estimates increasing to $30bn to $40bn: Goldman Sachs

6th September 2021 - Author: Katie Baker

Hurricane Ida’s loss estimates appear to be rising now that damage further north is being factored in, according to analysts at Goldman Sachs.

hurricane-ida-louisianaThe hurricane is the 9th named tropical storm of the 2021 Atlantic hurricane season, but the first to cause significant losses for the re/insurance industry.

Since its landfall in Louisiana as a category 4 storm with 150mph winds, loss estimates have ranged from $15bn to $40bn, with the top end surpassing the losses caused by Irma & Harvey in 2017.

While the catastrophe estimates provide a wide range of potential losses, analysts predict the loss estimates to be higher than the initial $15bn and now more towards $30bn to $40bn range.

They have also highlighted how difficult it is to estimate the total losses at such an early stage, since satellite images are unable to gauge the water damage caused to houses. It’s also difficult to estimate any post storm damages, such as mould, which adds to the claims amount as the water recedes.

RMS

Furthermore, the COVID-related surge in prices of building materials will also add to the claims, although claims inflation is normal in the aftermath of a major hurricane and included in estimates.

According to the analysts, Lancashire, Hiscox and Beazley are the most exposed to losses from Hurricane Ida, which they believe was one of the key drivers for the underperformance of these stocks around 31st August.

However, these companies would also be the most exposed to US property cat rate momentum that would generally follow a large industry loss event, as can be seen from the quick rebound in stock prices.

Analysts at Goldman Sachs said: “We expect reinsurers to be more materially impacted by losses incurred from Hurricane Ida than primary insurers, as reinsurers tend to take on a greater market share of large loss events and US insurers tend to be heavy utilisers of reinsurance.

“Therefore, we expect Lancashire, in our coverage, to be the most heavily impacted re/insurers as it has greater reinsurance exposure than Beazley and Hiscox and also has greater property catastrophe exposure”

While natural catastrophes can cause significant losses to the insurance companies, they tend to be earnings events instead of book value events. In other words, although such event can materially impact current year earnings, it does not tend to cause capital impacts.

Even with one of the most costly events in the industry – COVID, with an expected total loss in the region of c.$40 to $45bn, in our view this was not a capital event for the industry, but an earnings event and the losses so far remain manageable for most re/insurers.

The analysts continued: “If we assume the top end of the current loss estimates of $15bn to $40bn for Hurricane Ida, it would be more comparable to the 2017 loss year, which Beazley, Hiscox, and Lancashire had cat loss ratios of 12%, 9% and 42%, respectively.”

If there are lower losses, it would be more similar to a 2018 loss year when Beazley, Hiscox and Lancashire had cat loss ratios of 5%, 6% and 25% respectively.

“Either way, we believe Beazley and Hiscox will likely have manageable losses whereas Lancashire will be much more impacted.”

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