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Insured losses of some $100 billion could make the third quarter of 2017 one of the costliest in history for the insurance industry, but the sector has the resources to take such a hit, according to a research report issued by Morgan Stanley on Tuesday.
It still remains unclear whether the losses will lead to higher insurance and reinsurance costs, according to the New York-based investment bank.
Meanwhile, a report by rating agency Fitch Ratings Inc. on Tuesday said the storms will eat into insurers’ and reinsurers’ capital as well has hit third-quarter results.
Total insured losses from the recent hurricanes and earthquakes could range from $83 billion to $165 billion according to Morgan Stanley
While “early industry estimates could be subject to significant revisions,” estimates such as AIR Worldwide’s $40 billion to $85 billion industry losses from Maria, “exceeds those from Hurricanes Harvey and Irma, and could rival Katrina as the costliest natural disaster,” the Morgan Stanley analysts said.
AIR Worldwide, a Boston-based unit of Verisk Analytics Inc., surprised some observers when it issued its higher-than-expected estimate for insured losses from Hurricane Maria yesterday. The storm carved through the Caribbean last week causing devastation on several islands, including Puerto Rico, that were still recovering from Hurricane Irma earlier this month.
Morgan Stanley noted, however, that the U.S. property/casualty insurance industry has more than $700 billion in capital and global reinsurance capital stands at more than $300 billion, including roughly $60 billion in alternative capital.
The sector can withstand losses of more than $100 billion in the third quarter, “but the losses will significantly impact (insurers’ and reinsurers’) earnings and excess capital positions,” the report said.
There may be some hot spots among individual players, however.
“Market share in Puerto Rico is relatively concentrated, with the largest three writers, based on direct written premium, accounting for approximately 60% of the market,” said Morgan Stanley. According A.M. Best Co. Inc. data, the three largest insurers in Puerto Rico are: Mapfre North America Group, a unit of Spain’s Mapfre S.A., Cooperativa Seguros Multiples de Puerto Rico in San Juan, Puerto Rico, and Assurant Inc. in New York. Mapfre said on Tuesday that its net loss from the quarter’s storms would likely be between about $180 million and $240 million.
Opinions are divided on whether the catastrophe losses will lead to higher rates, the note said.
“Most investors we have spoken with are skeptical of a hardening market,” the Morgan Stanley report said. However, “we think the heightened catastrophe losses should support improving property (insurance and reinsurance) pricing,” the note said.
In a separate report, Fitch said the storm losses make rating downgrades more likely.
“Given the magnitude of the Maria-estimated losses, we now believe that 2017 catastrophe losses will constitute a capital event for a number of (insurance and reinsurance) companies, as opposed to just an earnings event. However, the industry’s very strong capital levels going into this year greatly limit any risks to solvency,” the Fitch report said.
Meanwhile, French reinsurer Scor S.E. said hurricanes Harvey and Irma will be covered by earnings.
“Hurricanes Harvey and Irma are expected to represent an earnings event rather than a capital event for Scor in the third quarter of 2017,” the Paris-based reinsurer said in a statement Tuesday, adding that, “The impact of Hurricane Maria is currently under assessment, but is not expected to change these perspectives.”
Hurricane Maria struck the Caribbean island of Dominica with Category 5 winds and rain causing floods and damaging houses, Chicago Sun Times reported. Officials in Guadeloupe said that the island is likely to experience flooding. In Martinique, authorities warned about possible power cuts and disruption in water supply. Hurricane warnings were issued for the U.S. and British Virgin Islands, Puerto Rico, St. Kitts, Nevis and Montserrat.