JP Morgan has estimated that Hurricane Ian is likely to cause more than $25bn in damages, while cautioning that more clarity will be gained in the next few days.
The firm said in a note that the speed of the storm and the resulting flooding will cause ‘catastrophic impacts’. But at this stage, it said that any accurate assessment is difficult due to a range of factors. However, it intimated that the hurricane may be the eighth largest in history.
However, other firms such as CoreLogic have put out estimates that say that the losses to the insurance and reinsurance industry could hit $47bn. RMSI has gone further with an estimate of $65bn, while KBW has gone lower, positing that losses will be $30bn.
JP Morgan wrote: “The most-accurate source of industry losses is the catastrophe modelling agencies. These agencies provide industry-level loss estimates for events based on their assessment of historical events and proprietary data which are the best sources of information. Looking at previous events, it usually takes between four and nine days for the first loss estimates to emerge. Hurricane Ian that could have more than one landfall is likely to take longer in our view due to its complexity.”
The financial giant also referred to the fact that every reinsurer has a catastrophe budget for the quarter and across the whole year. A hurricane, it said, ‘alone may not be cause for earnings downgrades’.
It added: “By back solving for market shares and catastrophe loss budgets, we estimate that the European reinsurers could absorb the 8th largest hurricane loss of all time. However, this would assume that Q3 is benign otherwise, and so far this does not appear to have been the case.”
Based on its calculations, JP Morgan said that European reinsurers can absorb a loss of around $22bn, based on their catastrophe budgets.
It went on: “If we look at the first half of the year, 3 of the 4 reinsurers had losses above their expectations. Munich Re, however, had some headroom left in its 1H budget, meaning that the company has the greatest level of loss absorbency in its guidance for the year.”
The firm also looked at the potential impact on pricing going into next year.
It wrote: “Even when Q3 looked like it was turning out to be a relatively benign period for catastrophe losses, there was a consensus amongst the reinsurers and the reinsurance brokers at Monte Carlo that capacity would be more scarce in 2023 and pricing would increase to reflect this imbalance. Therefore, we expect pricing to move materially in 2023, especially if as we suspect, that Hurricane Ian will be a material loss for the sector. Capacity in Florida had already been scarce with many insurers finding it difficult to find cover at the lower layers of their reinsurance programmes.”
