While Catastrophe activity in the first-quarter of 2019 was muted when compared with other Q1s, elevated attritional losses in the period is expected to pressure the margins of some Property and Casualty (P&C) insurers and reinsurers, warn Goldman Sachs analysts.
Specifically, analysts highlight the potential for exposure to large non-cat losses for U.S. homeowners lines and also, albeit to a lesser extent, commercial property lines.
Goldman Sachs notes that the polar vortex that hit the U.S. in January, most notably the Midwest region, is estimated to have driven insured losses of more than $500 million, and warns of elevated attritional losses for U.S. homeowners insurers as a result of their exposure to the impacts of frozen pipes, roof damage, and water-related destruction driven by the series of storms.
“We model elevated attritional losses for homeowners this quarter. We also point to thunderstorms, hail, wind and flooding rainfall in late February in the central and eastern parts of the United States, estimated to have caused severe damage to homeowners,” explains Goldman Sachs.
The U.S. also experienced large scale flooding and a series of powerful tornadoes hit Missouri in March, 2019. Analysts note that the flooding mostly impacted the farming industry, and while flood damage is typically excluded from homeowners policies, farms might well be covered for property, crop, and also livestock damage.
The losses from the flooding are expected to be manageable, driven by timing and the fact the majority of farmers do not insure their livestock against such events.
Adding to the pressure on margins for P&C players are the severe delays being experienced at the Port of Houston, driven by the closure of a channel as a result of a chemical leak at nearby burned-down facility. Goldman Sachs says this event is likely to hit business interruption policies, adding that just a few days of closure can amount to almost $1 billion in direct and indirect expenses.
Overall, industry models have put the Q1 insured catastrophe load at between $4 billion and $7 billion, which compares to $7 billion experienced in Q1 2018, and which is below the $10 billion median for the last decade.
During the first-quarter of this year, catastrophe losses were more weighted to international events, including flooding in Australia, winter storm Eberhard which mainly impacted Germany, and a number of other, severe winter wind events in Western Europe.
Furthermore, the fatal crash of the Boeing 737 MAX 8 Ethiopian Airlines flight is expected to result in a large loss for insurers, with the majority of losses expected to come from Boeing’s insurer. At the same time, the crash of a Fedex Boeing 767 cargo aircraft is also expected to drive losses.
Analysts also note further loss creep from Typhoons Jebi and Trami, as well as Hurricanes Irma and Michael, and expect the first-quarter 2019 catastrophe hit to be more weighted to the primary insurance market.