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Irma insured losses could reach $40 billion

Posted On: Sep. 11, 2017 1:37 PM CST

Catastrophe modeler AIR Worldwide on Monday estimated that U.S. insured losses resulting from Hurricane Irma will range from $20 billion to $40 billion.

AIR’s estimates are based on the National Hurricane Center’s 5 p.m. EDT Sunday forecast advisory for Irma, the Boston-based unit of Verisk Analytics Inc. said in a statement.

Exposure value in the Florida coastal counties along the Gulf of Mexico up to Tampa, which will bear the brunt of the impact, is estimated at $1 trillion, according to AIR.

On Saturday, AIR said that combined insured losses for Hurricane Irma for the United States and selected islands in the Caribbean will be between $20 billion and $65 billion, and the company had issued a somewhat broader range of for the United States of $15 billion to $50 billion from Irma’s wind and storm surge.

On Sunday, Newark, California-based catastrophe modeler Risk Management Solutions Inc. said in a blog post by senior product manager Tom Sabbatelli that its modeling indicates there is a 10% chance of insured wind losses from Irma exceeding $60 billion.

“This threshold continues to decrease from previous guidance, reflecting the increasing probability of a predominantly offshore storm track,” Mr. Sabbatelli wrote.

“However, it is imperative to stress that today’s estimate, like all previous estimates, does not include contributions from storm surge nor post-event loss amplification (PLA),” Mr. Sabbatelli continued. “As mentioned in yesterday’s update, concerns for significant storm surge and PLA are increasing.”

The declining numbers were noted by analysts.

“As the impact of Irma still unfolds, industry losses may be less than feared,” Morgan Stanley said in a research note Monday, adding, “The property/casualty industry has strong balance sheet to weather the financial impact.”

At a roundtable at the Rendez-Vous de Septembre in Monte Carlo, Monaco, on Sunday organized by S&P Global Ratings Inc., several insurance industry observers suggested that the recent U.S. hurricanes are more likely to be earnings events than capital events, but have the potential to change risk perceptions and management behavior, S&P said in a Monday report, “Reinsurance Ratings Roundtable Panelists Comment on Impact of Hurricanes Harvey and Irma.”

William Hawkins, a London-based analyst with Keefe, Bruyette & Woods Inc., said he expects Hurricane Harvey will be enough to exhaust the catastrophe budgets of many of the biggest reinsurers in the second half of the year, but it will be no worse than that. “It will be on the edge of being an earnings event, but nothing more,” he said. Hurricane Irma has the potential to become a more meaningful earnings event for the sector, he added.

David Flandro, New York-based head of global analytics for JLT Re, a unit of Jardine Lloyd Thompson Group P.L.C., agreed that the storms are more likely to be earnings events than capital events for the industry, according to the report.

In a research note Monday, KBW analysts said, “Hurricane Irma’s landfall on Florida’s west coast suggests industry losses below the ‘worst-case’ of a direct hit to Miami. KBW analysts doubt Irma will be an industrywide capital event; a few as-yet-unidentified risk-bearers (traditional reinsurers and/or ILS investors) will likely take disproportionately high losses.”

Harvey losses

RMS also estimated on its Saturday blog post that the insured loss from Hurricane Harvey will be $25 billion to $35 billion, with an upper boundary of $40 billion.

This RMS estimate represents the insured losses associated with wind, storm surge and inland flood damage, across Texas and Louisiana only, according to the blog post. The estimate also includes gross losses accrued to the National Flood Insurance Program of $7 billion to $10 billion.

“Although Harvey was a Category 4 storm at landfall, the point of landfall along the coastline of Texas is less densely populated than other coastline areas, which has limited the magnitude of the overall total wind- and surge-related losses,” said Michael Young, head of U.S. climates modeling at RMS, according to the post.

Harvey and Irma combined should be within the industry’s ability to cope, Morgan Stanley said in its research note.

After more than a decade of relatively benign catastrophe losses, the U.S. property/casualty industry capital has grown to more than $700 billion, with global reinsurance capital over $300 billion, according to Morgan Stanley.

“We think the industry as a whole should be able to withstand 1-in-100-year event, or $100 billion (plus) insured losses,” Morgan Stanley said in its note.