While Hurricane Ida is expected to generate significant economic and insured losses in Louisiana, it is likely to be an earnings event, rather than a capital event, for the re/insurance industry, according to Fitch Ratings.
Fitch does not expect Ida to trigger ratings downgrades for individual P&C re/insurers operating in Louisiana, which as a market has experienced capital expansion over the past 12 months, and is considered to be well-positioned to absorb a significant catastrophe loss.
Ida made landfall along the Louisiana coastline as a Category 4 hurricane on Sunday, and was among the strongest storms to ever hit the state.
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.
However, Ida is likely to surpass winter storm Uri ($15 billion) as the largest industry event in 2021 and Hurricane Laura ($10 billion), which was the costliest insured catastrophe event of 2020.
Fitch also notes that some of the strongest winds from the storm occurred near New Orleans, creating widespread power loss in the city and increasing the potential for elevated economic and insured losses.
Added to this is a recent uptick in hospitalised patients in hospitals across Louisiana due to a resurgence in COVID cases, which has put additional pressure on local governments to protect facilities that cannot be readily evacuated.
And the ongoing pandemic may compound the normal logistical challenges of assessing damage to property following a catastrophe event and lead to modestly elevated levels of loss adjustment expenses, Fitch observed.
“Ida will be a significant loss event for reinsurers given the estimated size of the loss at greater than $10 billion and the concentration of more regional primary insurers in the state that have generally have lower retentions,” Fitch stated. “The storm could also trigger aggregate covers given the above average accumulation of insured losses thus far in 2021.”
Two companies that are in the top 10 of homeowners’ writers in Louisiana are subsidiaries of United Insurance Holdings, Ltd and FedNat Holding Company, which reported elevated combined ratios and capital declines in 1H21.
Analysts note that smaller and more thinly capitalized homeowners’ specialists are generally more reliant on ceding catastrophe losses to reinsurance partners to limit net retained losses and may be more vulnerable to a large industry event.