Despite Hurricane Laura having become one of the 10 largest storms ever to hit the continental US, analysts from Berenberg and KBW have noted that insured losses will likely remain manageable, unless losses far exceed current expectations.
While still too early to provide a concrete outlook, Berenberg notes how the extent to which earnings will be hit depends on the how much of reinsurers’ catastrophe budgets is exceeded by the end of the year.
Given that catastrophe losses have generally been under budget for year to date, there is some headroom for a higher-than-average hurricane season.
According to previous analysis, Berenberg pegs Munich Re’s market share of industry hurricane losses at around 5%, with Swiss Re on 4%, Hannover Re on 1.5% and SCOR on 1%.
This means that for every $10 billion in industry losses, Munich Re would shoulder around a $500 million hit (2.25% of excess capital), Hannover Re $150 million (6% of excess capital), Swiss Re $400 million (7% of excess capital), and SCOR $100 million (8% of excess capital).
Even if these losses were to quadruple, bringing them closer to those of Katrina, Berenberg states that the impact on excess capital would still very manageable.
Berenberg pegs Munich Re’s year to date nat cat losses at around $450 million and says that its budget of around $2.1 billion should highlight the remaining headroom.
In contrast, Berenberg estimates Swiss Re’s budget to be a bit tighter with just $700 million remaining, implying that an industry loss of above $20 billion would probably push it beyond its annual cat budget.
Furthermore, it’s important to note that we are not at the end of peak hurricane season, and hence there could be additional losses, which would stress budgets further.
KBW adds that, despite the initial intensity, insured losses from both wind and flood should remain quite manageable, since the landfall avoided major cities like Houston and New Orleans.
Based on 2019 direct written premiums for cat-exposed lines in Arkansas, Louisiana, and Texas, KBW says a very rough market share-based allocation of an illustrative $8 billion industry loss would account for less than 3% of mid-year common equity for every company under its coverage, before considering taxes and mitigating reinsurance.