NFIP Harvey loss $7-$10bn, reinsurance layer likely a loss: RMS

by Artemis on September 4, 2017

The $1.024 billion reinsurance program of the National Flood Insurance Program (NFIP) looks increasingly likely to be a total loss, as estimates continue to suggest that the hurricane Harvey loss to the NFIP is likely to mean the reinsurance program at least triggers, but most likely pays in full.

The $1 billion flood reinsurance cover will pay 26% of NFIP losses between $4 billion and $8 billion and now catastrophe risk modelling specialists RMS have estimated that the NFIP’s loss will be a minimum of $7 billion and a maximum of $10 billion, suggesting the program is most likely exhausted.

A panel of 25 global reinsurers is set to pay the NFIP under its first ever reinsurance claim. The reinsurance program was purchased in January and was the first proper foray into the reinsurance market for the NFIP. The coverage will demonstrate its worth with hurricane Harvey, which it is to be hoped encourages FEMA to increase the size of it and transfer more risk to the private markets.

Having analysed NFIP portfolio data, RMS believes that the Program’s gross losses will be between $7 billion and $10 billion, with around 40% of those claims from Harris County alone.

The NFIP told Artemis that they had received over 67,000 claims by September 2nd, a number that is likely to have risen considerably since then.

RMS believes that it is not unreasonable to assume an average claim cost of around $65,000, so based on the reported claims that is already over $4.35 billion, putting the reinsurance layer in play, and it is very early days for claims filing still.

RMS anticipates that the NFIP will receive approximately 100,000 to 150,000 claims from hurricane Harvey’s flooding, which will lift the loss well into the reinsurance layer.

Hurricane Harvey could be a top 3 flood loss for the NFIP, putting it up with Katrina and Sandy in terms of impacts.

Ten Most Significant Flood Events to the National Flood Insurance Program – Ranked by Total Value of Claims Paid

Ten Most Significant Flood Events to the National Flood Insurance Program – Ranked by Total Value of Claims Paid - Via RMS

The fact that reinsurance may help to pay some of the NFIP’s claims from Harvey will demonstrate the importance of de-risking the program and diversifying U.S. flood risk into private reinsurance markets. In future this could lead to an increasing amount of the program being transferred to reinsurers and perhaps the capital markets, which will help to make the NFIP more sustainable in the long-run, alongside a gradual privatisation of the primary flood policies.

Also read:

1347, Hallmark, FedNat set to make reinsurance claims for Harvey.

Harvey insured loss $15.4bn (ex NFIP): Karen Clark & Co.

Complex Harvey loss could lead to reinsurance & ILS litigation: A.M. Best

Harvey cost could be $108bn: Moody’s. NFIP loss could be $9bn: Corelogic.

Harvey industry loss seen up to $25bn (ex-NFIP) by Morgan Stanley.

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

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.

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.

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