Analysts at AM Best expect losses from Hurricane Ida to be “manageable” for Louisiana insurers, constituting more of an earnings event than a capital event.
The rating agency notes that most of the insurers writing direct business in Louisiana are geographically well diversified, with only six having more than 75% of their direct premium written in the state.
What’s more, these concentrated insurers tend to be smaller, regional players with lower levels of capital, meaning a sizeable amount of the losses will likely be ceded to reinsurers.
However, AM Best also believes that reinsurers should be able to comfortably absorb the magnitude of losses without impacting their capital positions.
Ida made landfall in Louisiana as a Category 4 hurricane just south west of New Orleans on Sunday and is likely to become the largest property catastrophe loss so far this year.
Early estimates indicate a potential industry loss of $15 billion to $25 billion, which would be well below the record $65 billion of insured losses from Hurricane Katrina in 2005, which had a much larger footprint than the more compact Ida.
Ida’s path was similar to that of last year’s Hurricane Laura, which resulted in about $5 billion in insured losses, but Ida landed further east and had more of an impact on New Orleans, which will likely result in a larger share of losses for the commercial lines.
Property damage and business interruption losses may also contribute more to overall losses than Hurricane Laura did, which had greater impact on personal lines.
AM Best further notes that insurers in Louisiana are already coming off a year of heightened losses, with more than 300,000 claims attributable to Hurricanes Laura, Delta, and Zeta in 2020, and underwriting losses may continue in 2021 as well.
Hurricane Ida hit New Orleans 16 years to the day of Hurricane Katrina, although Ida’s storm surge was not as severe, and the infrastructure improvements made since Katrina are expected to help curtail losses.
In particular, National Flood Insurance Program (NFIP) losses should be lower, as the new levee systems have thus far performed as expected. Also, Ida’s wind field was smaller than Katrina’s was, narrowing the area of more severe wind damage.
Reflecting on the wider impact of Hurricane Ida, AM Best suggested that the event could add to uncertainty about the growing frequency of weather events and provide momentum to reinsurance pricing.
“Hurricane Ida could pressure reinsurers, whose natural catastrophe budgets had already been increased following the Texas freeze, as they must contend with potentially high claims activity during the rest of 2021 Atlantic hurricane season,” analysts contended.
