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Re/insurer’s IFS ratings unlikely to face adverse impacts from Michael: Fitch

12th October 2018 - Author: Charlie Wood

While hurricane Michael will add to the insured catastrophe losses accumulated thus far this year and push 2018 closer to a more normal catastrophe loss year, re/insurer’s individual Insurer Financial Strength (IFS) ratings are unlikely to face adverse impacts, according to Fitch.

Fitch RatingsFitch believes the property/casualty re/industry is well positioned to absorb the losses from Michael, following losses from Hurricane Florence, as capital remains strong.

This confidence in the market mirrors recent reports from analysts at Keefe Bruyette & Woods as well as from Willis Towers Watson, with both firms having stated that losses won’t be overly disruptive.

As a large, powerful, fast moving, very strong category four storm, Hurricane Michael is clearly much more of a wind event than flood, states Fitch.

The storm’s path contrasts with Florence, which lingered over the Carolinas dumping tremendous rainfall over several days, which created considerable flood losses.

Fitch adds that, with a higher wind related loss component, private insurers will bear a greater proportion of losses from Michael than Florence, where most of the significant flooding loss was uninsured or is covered by the National Flood Insurance Program (NFIP).

The report continues by breaking down the respective $4.5 billion and $8 billion loss estimates from Corelogic and KCC, but reiterates that re/insurers should be well positioned to absorb losses of this magnitude.

Florida specialty insurers are likely to have considerable gross losses, but typically have considerable external reinsurance.

These reinsurance programs performed well following the more costly Hurricane Irma event in 2017. As such, Florida specialty writers’ Michael losses should not exceed outwards reinsurance coverage limits.

Fitch says that, while incurred losses from the storm may rise from initial estimates as claims adjusters reach affected areas, Michael appears likely to generate ultimate losses below the $13 billion insured loss from Ivan in 2004.

While Ivan also hit the Florida panhandle with somewhat less intensity as a strong category three, it made landfall in a more populated area near Pensacola Florida and Alabama, west of where Michael struck.

Given the significant use of reinsurance by Florida primary companies, global reinsurers will have exposure to losses from Michael, adds Fitch.

However, it does not expect the storm to serve as a catalyst for reinsurance rate increases given how muted pricing increases were following the much larger H217 catastrophe loss events.

Lastly, Fitch believes the Insurance Linked Securities (ILS) market is not expected to be materially exposed to Hurricane Michael.

Collateralised reinsurance and ILS funds that participate on lower layer quota share reinsurance or retrocession agreements with cedants that were particularly exposed to the region would be the most likely source of potential modest loss in the ILS market.

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