The property & casualty (P&C) market appears to be discounting a 1-in-100 year loss event for some reinsurers, as major hurricane Irma impacts the Caribbean and remains on track to make a U.S. landfall this weekend, according to industry analysts.
Hurricane Irma, now a Category 5 storm with winds of 185mph as it tracks west across the Atlantic, is still forecasted to maintain intensity and potentially make landfall in the state of Florida, U.S., this weekend.
The storm comes on the heels of hurricane Harvey, which devastated Houston, Texas with unprecedented levels of rainfall and subsequent flooding, with the total damage and overall loss still be assessed.
In light of hurricane Irma’s potential track and intensity, which remains subject to uncertainty as the storm develops and moves over the Atlantic, analysts have commented that the P&C market is discounting a 1-in-100 year loss event.
“While the uncertainty of Irma losses remains an overhang to the group in the near term, we think the market is discounting a 1-in-100-year loss event, for some reinsurers. We believe the industry balance sheet should be able to withstand such a catastrophic scenario,” says Morgan Stanley, in a recent P&C sector note.
Analysts feel that should Irma make landfall in Florida it will be more of an event for the reinsurance industry than the primary sector, owing to the high use of reinsurance protection in the region and the fact “private primary insurers have shied away from writing both commercial property and homeowners in Florida over the last fifteen years,” according to Credit Suisse analysts.
Credit Suisse explains that catastrophe models, generally, agree that a 1-in-100 year Florida hurricane is the same as a Category 4 storm directly hitting Miami, which would likely result in an insured loss of around $125 billion.
“The odds of that event are clearly currently much greater than 1 in 100 given the path and size of the storm,” says Credit Suisse, in its P&C insurance sector note on hurricane potential threat of hurricane Irma.
“The reality that we are still somewhat early in wind season is likely to remain an overhang for the group, especially when we consider that primary insurers may be less protected for the next catastrophe assuming they were forced to use their 1 reinstatement on Irma,” explains Credit Suisse.
Widespread uncertainty remains and the industry will be keeping a close eye on Irma as it tracks towards the U.S., potentially bringing catastrophic winds, flooding and storm surge to a number of Caribbean islands. On the back of hurricane Harvey, a major Irma landfall in Florida would likely be a real challenge for insurers and reinsurers operating in the region.
