Re/insurers ‘Well Positioned To Absorb Losses’

October 12, 2018

Hurricane Michael will add to insured catastrophe losses accumulated thus far this year, pushing 2018 closer to a more normal catastrophe loss year, following a relatively benign first half of 2018, according to Fitch Ratings.

The company said, “Fitch believes the property/casualty [re]industry is well positioned to absorb the losses from Michael, following losses from Hurricane Florence, as capital remains very strong.

“The industry proved resilient following the record catastrophe losses in 2017. Individual [re]insurer Insurer Financial Strength [IFS] ratings are unlikely to face adverse impacts solely from this event.

“As a large, powerful, fast moving, very strong category 4 storm, Hurricane Michael is clearly much more of a wind event than flood.

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

“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 is uninsured or is covered by the National Flood Insurance Program [NFIP].

“Corelogic, Inc. provided a pre-landfall insured loss estimate of $2.0 billion to $4.5 billion, of which less than $0.5 billion is expected from storm surge.

“This estimate also indicated that Michael will be more of a residential [$1.5 billion to $3.0 billion] loss event than commercial [$0.5 billion to $1.5 billion], with the vast majority of loss in Florida and much less in Georgia. Catastrophe modelling firm Karen Clark & Co. estimates that private insured losses from Michael could approach $8.0 billion.

“ [Re]insurers should be well positioned to absorb losses of this magnitude. The top five primary personal/commercial lines insurers in Florida based on 2017 direct premiums are: Citizens Property Insurance Corp. Universal Insurance Holdings Inc., State Farm Mutual Insurance Group, Tower Hill Group, and Federated National Insurance Group.

“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.

“While incurred losses from the storm may rise from initial estimates as claims adjusters reach effected areas, Michael appears likely to generate ultimate losses below the $13.0 billion [2017 dollars] insured loss from Ivan in 2004.

“While Ivan also hit the Florida panhandle [with somewhat less intensity as a strong category 3], 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.

“The top five reinsurers of Florida business in 2017 by assumed premiums [excluding the Florida Hurricane Catastrophe Fund] were Munich Reinsurance Company, Everest Re Group Ltd., Lloyd’s of London, Tokio Marine Holdings Inc., and Allianz SE.

“Fitch does not expect the storm to serve as a catalyst for reinsurance rate increases given how muted pricing increases were following the much larger 2H17 catastrophe loss events.

“The Insurance Linked Securities [ILS] market is not expected to be materially exposed to Hurricane Michael. Collateralized 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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