The private insurance and reinsurance market faces a loss of over $10 billion from hurricane Harvey’s winds, flooding and storm surges, according to risk modelling firm AIR Worldwide, while the total property damage from flooding alone is seen as high as $75 billion.
Around $3 billion of the $10 billion plus figure is seen as from the wind and storm surge damage caused when Hurricane Harvey came ashore in texas, but the remainder is the private insurance and reinsurance market flood loss, which will largely be auto and commercial property lines related.
The $10 billion or greater figure does not include losses to the U.S. National Flood Insurance Program (NFIP), which given the size of the estimate of property damage due to flooding seems assured of taking a major hit and therefore passing on another $1 billion of losses to reinsurers through its reinsurance program.
AIR estimates those property losses solely from the flooding in Texas due to Hurricane Harvey’s record-breaking rainfall at between $65 billion and $75 billion, including damage to those properties eligible for coverage whether they are actually insured or not and without applying deductibles or limits.
It gives an idea of the protection gap and opportunity for a private market solution to the U.S. flood risk problem, especially when you consider that estimates suggest the NFIP will only bear somewhere up to $10 billion of the up to $75 billion bill. Private market insurers and reinsurers are willing and able to cover a significant proportion of the uninsured risk load, as long as it is on a risk commensurate pricing basis.
At over $10 billion the reinsurance and ILS fund sectors are likely to take a decent share of Harvey’s losses, but it will not be extreme by any means and primary insurers are likely to retain the lions share.
All catastrophe bonds can be deemed safe from any hurricane Harvey impact at this level, apart perhaps from some aggregate deductible erosion. Private ILS and collateralized reinsurance layers that are riskier could also see deductible erosion and perhaps some smaller losses will be suffered by a number of ILS funds, but it will not be significant at this level of industry impact.
AIR explains that included in its estimates are onshore residential, commercial, and industrial properties and their contents, automobiles, and time element coverage (additional living expenses for residential properties and business interruption for commercial properties); but the estimates do not include contingent business interruption losses resulting from the closure of oil and energy facilities which could add to the private industry toll.
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