Munich, Swiss, Berkshire are reinsurers most exposed to Harvey: RBC

Analysts at RBC Capital Markets found that it is the usual reinsurance suspects that are likely to be the most exposed to hurricane Harvey on a reinsurance basis, with Munich Re, Swiss Re and Berkshire Hathaway considered the three likely to take the greatest share of reinsurance losses.

RBC’s team performed an analysis of the reinsurance programs of the largest commercial insurers operating in Texas and found that these three are the biggest reinsurance counterparties among the group it sampled.

Hurricane Harvey is still largely a flooding event, but for commercial property and industrial type coverage a greater proportion of flood risks are insured and thus backed by reinsurance, than is found with residential property risks.

Hence by analysing just commercial insurers arrangements, RBC believes it can identify where a relatively large proportion of the reinsurance exposure will come from and puts these three as top of the list for taking a share of losses.

It’s important to remember here that all three of these companies also operate as commercial insurers themselves as well, Munich Re through its Risk Solutions unit, Swiss Re through its Corporate Solutions unit, and Berkshire Hathaway through its Berkshire Hathaway Specialty Insurance.

So while the three are put at the top of the list for taking reinsurance losses from their counterparties in Texas, they are also likely to take relatively large commercial insurance losses themselves as well.

It’s also worth noting that at least two of the three are likely major participants in the $1.024 billion reinsurance program of the National Flood Insurance Program’s (NFIP), which it’s now believed could face a total loss, adding to the toll they will take.

Interestingly, Munich Re has almost twice as much of its catastrophe loss budget remaining for 2017 compared to Swiss Re, according to RBC, which could enable it to soak up a much larger loss than many competitors before it begins to see its capital impaired in any way.

That said, hurricane Harvey is not going to impair the capital of any major reinsurance firms, and is also unlikely to impair primary insurers, or smaller reinsurers as well. Given the fact wind and surge damage is expected to be so much lower than the economic cost of the flooding, it seems Harvey will not support reinsurers desire to turn pricing to any degree.

RBC estimates that the four major European reinsurance firms have around EUR 3 billion of their large loss budgets left for the rest of 2017, which should soak up any Harvey exposure easily.

Hurricane Harvey will diminish catastrophe loss budgets for the rest of the year though, increasing the chances that future storms of catastrophic events could hurt the reinsurers more.

Finally, RBC says that at a $10 billion to $20 billion insurance and reinsurance industry loss, “We believe that Hurricane Harvey will be an earnings event. Whether this brings an end to the soft market, we have our doubts, but losses from this event will undoubtedly put a dent in earnings for the year and may well strengthen the resolve of the reinsurers heading into initial pricing discussions at Monte Carlo in September.”

Finally, it’s interesting to note that Warren Buffett said yesterday that Berkshire Hathaway won’t have much reinsurance exposure, as it no longer underwrites so-called super-cat coverage, as our sister publication Reinsurance News covered here.

It will be interesting to see how accurate that proves and how much overall loss Berkshire takes from its auto insurer Geico and its Specialty and commercial insurance operations.

Also read:

– NFIP reinsurance program could be wiped out by Harvey: Fitch.

– Harvey wind, surge & flood economic loss could be $70-90bn: RMS.

– Harvey won’t cause cat bond loss but could erode aggregates: Paul Schultz.

– Harvey economic loss could be up to $75bn: Moody’s Analytics.

– ILS can help to narrow the flood risk protection gap: Miller, JLT Capital Markets.

– Aggregate cat bonds, private ILS seen most exposed to Harvey.

– Hurricane Harvey floods could hit NFIP’s $1 billion reinsurance layer.

– Markel CATCo sees minimal Harvey hit at below $10bn industry loss.

– Hurricane Harvey loss up to $20bn, unlikely to move pricing: Analysts.

– Cat bond funds don’t expect Harvey loss, private ILS more exposed.

– AIR puts Harvey wind & surge insured loss at up to $2.3bn

– Cat bond market drops on Harvey, close shave for Fonden 2017 deal?

– Live cat trades completed on hurricane Harvey threat.

– Half of hurricane Harvey loss could fall to reinsurance: J.P. Morgan.

– Hurricane Harvey – catastrophe bond exposure.