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Just 15% – 20% of Florence exposure might be passed to reinsurers: Analysts

14th September 2018 - Author: Luke Gallin

Examining the distribution of losses from 2017 hurricanes, combined with looking at the market structure and penetration, the National Flood Insurance Program (NFIP) and state windstorm pools, suggests reinsurers might only assume 15% to 20% of the hurricane Florence exposure, based on a $10 billion insured loss.


Hurricane Florence as seen from the International Space Station. Source: NASA

As the storm continues to impact parts of North and South Carolina, The Buckingham Research Group has released an update on hurricane Florence exposure. Using the distribution of losses from 2017 hurricanes as a proxy (reinsurance covered approximately 20%, third-party capital 20%, and primary players 60%), suggests reinsured losses of between $1.5 billion and $2 billion.

This range is assuming a 15% to 20% contribution to a total insured loss of $10 billion, says the report.

Noting CoreLogic’s updated loss estimate of up to $5 billion, which excludes insured losses related to rainfall, riverine or other flooding, The Buckingham Research Group’s $10 billion estimate accounts for insured flooding as well as NFIP (inland flooding), and the impact from wind pools.

Ultimately, the update says that Florence will be mostly a primary event, and analysts at Keefe, Bruyette & Woods (KBW) have echoed this, stating that it expects primary insurers to bear most of the insured losses, adding that this will likely be very manageable.

KBW continued to say that it still does not expect “these losses to materially impact insurance or reinsurance pricing trends.”

After the muted rate response following 2017 catastrophe events this isn’t too surprising, with the reinsurance market now suggesting that a $200 billion+ event or series of events is required to meaningfully turn pricing, as highlighted in our global reinsurance market survey.

Regarding the NFIP, and using hurricane Harvey as a proxy, analysts say that reinsurer exposure to Florence via the NFIP might well be limited. From Harvey, the NFIP paid $7 billion of $30 billion total insurance claims, with reinsurance covering just over $1 billion of this. Applying the same metrics to Florence, means the NFIP would face a $2.3 billion potential loss, which wouldn’t eat into its reinsurance layer, which kicks in after $4 billion.

The Buckingham Research Group also states that the reinsurance exposure to North Carolina Pool, designed to be a last resort, might also be limited to $100 million. At the same time, reinsurer exposure to South Carolina Windpool might be limited to $740 million.

The water and flood threat from hurricane Florence remain significant, and the slow moving storm is expected to batter the coastline for several days. With this in mind, it remains uncertain exactly how costly the storm will be for insurers and reinsurers, but currently, analysts are saying that it is most likely going to be an earnings event that will be largely retained by the primary market.

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