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Maria loss estimate lowered; rates still set to rise

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Catastrophe modeling firm AIR Worldwide has updated its loss estimates for Hurricane Maria in the Caribbean to between $27 billion and $48 billion, with losses in Puerto Rico estimated at between $25 billion and $43 billion.

In late September, AIR had estimated that Maria would cause insured losses of between $40 billion and $85 billion.

The reduction in the high end of the loss estimates is due mainly to a review of Maria’s intensity over Puerto Rico, which showed among other things lower wind speeds than previously estimated and a narrower overall wind footprint, AIR said Wednesday in a statement.

AIR said that since a significant portion of its modeled losses for Puerto Rico are generated by the industrial line of business, uncertainty remains in the loss estimates due to the potential for business interruption claims. Demand surge could also potentially contribute to the level of losses, AIR added.

Separately, investment banking firm Jeffries L.L.C. in a note on Thursday said it expects loss estimates to rise in 2018 as there is a gap of $20 billion between insurer-reported losses and estimates of total insured losses, potentially driving reinsurance price hikes.

“We believe that the most likely explanation is that some company estimates will rise in 2018, fueling reinsurance price rises,” Jeffries said in its note. “We expect upward loss revisions in 2018,” and “believe that the missing $20 billion gap between the declared losses will manifest over time through increased company-level losses.”

Such revisions are “fairly common” after such large loss events, Jeffries said, due to the initial subjectivity of some calculations. Industry loss estimates rose 20% after Hurricane Katrina in 2005 and 70% after Superstorm Sandy in 2012, Jeffries said.

By aggregating natural catastrophe losses for hurricanes Harvey, Irma and Maria and the Mexican earthquakes reported at insurers’ third-quarter earnings and assuming a $29 billion loss for the alternative capital sector, “we still fall short of the industry estimate of $90 billion to $100 billion by just over $20 billion,” Jeffries said.

Jeffries also noted the potential effects of demand surge and business interruption, saying, “not all insurers factor in the inflation of rebuilding materials and labor costs post a catastrophe event,” and “loss estimates for Hurricane Maria and specifically Puerto Rico's business interruption claims are likely to be particularly volatile given that much of the island is still without reliable power.”