AM Best has underlined Hurricane Laura‘s potential to stress balance sheets already weakened by COVID-19 and damage insurers’ 2020 earnings.
Though analysts from the ratings agency believe reinsurance may help mitigate these losses, potential future challenges to future risk management strategies are expected to remain, as loss affected areas see increases in rates that are already hardening.
Although the capital position of smaller companies may be more at risk, AM Best notes how prudent enterprise risk management strategies could result in losses that will have more of an impact on earnings rather than on capital.
In general, the inherent price inflation for construction supplies and contractors after a hurricane will likely be exacerbated by COVID-19, AM Best says.
Technology’s role in this area could be a mitigating factor however, as the use of drones may help insurers assess losses and estimate replacement costs.
Louisiana supposedly accounts for less than 2% of US premium for the lines that would be affected (commercial multiperil (non-liability), fire & allied lines, homeowners/farmowners and auto physical damage).
AM Best says State Farm has the largest market share in Louisiana for these four lines combined, over 22%, while 10 companies account for almost 60% of the market.
However, very few companies have significant exposures to these four lines relative to their total direct premiums written (DPW).
More than 88% of companies have exposures of less than 10% of their total DPW; just over 4% have exposures of more than 50%.
For the people of Louisiana and the surrounding area, it’s going to be a challenging morning as the storm passes through, with rainfall totals expected to be 8 to 12 inches, with isolated maximum amounts of as much as 18 inches possible.