Hurricane Maria a $30bn re/insurance loss: Karen Clark & Company

Catastrophe risk modelling specialists Karen Clark & Company (KCC) have put the insurance and reinsurance industry loss from hurricane Maria’s Caribbean and Puerto Rico impacts at $30 billion, which falls at the top-end of RMS’ estimate, but below the low-end of AIR’s.

The addition of this third estimate of insured losses caused by hurricane Maria helps, as we begin to find a point to focus on in the broad range from the low-end of RMS’s estimate of $15 billion to the top-end of AIR’s at $85 billion.

Coincidentally, the majority of equity analysts we track had been working off an assumption of $30 billion to $40 billion of losses from Maria in their calculations, so KCC’s $30 billion estimate provides additional evidence that the eventual industry loss will be around this point.

KCC’s estimate is based on modelled output and puts Puerto Rico as the lions share of the industry loss from hurricane Maria, at $28.35 billion. The U.S. Virgin Islands add $789m, Dominica is put at $445m, Guadeloupe $119m and other Caribbean territories will contribute another $94m to the industry loss, according to KCC.

The total estimate is for $29.797 billion of losses to fall to insurance and reinsurance interests.

This seems aligned with another estimate that was released today, a $95 billion economic loss estimate from Moody’s Analytics. KCC’s estimate of a third being insured seems a reasonable approximation, based on insurance penetration data, market share information and the anticipation of demand surge and business interruption expenses.

KCC said that its estimates includes damage caused by hurricane Maria’s winds to residential, commercial, and industrial properties. The these modeled property losses were amplified by 20% to account for auto exposure, flood damage that was insured and the expected additional demand surge.

Other estimates for insured damages from hurricane Maria include AIR Worldwide’s estimate of between $40 billion and $85 billion, while fellow risk modellers RMS opted for $15 billion to $30 billion.

As we wrote earlier today, a number of ILS funds are already set to report negative returns for August just from hurricane Harvey, with many more likely to be negative for September (a few particularly so).

The upshot will be some increase in reinsurance pricing, given the extent of the capital erosion facing the sector, but as we also wrote today the price rises may not be what some are looking for and may be insufficient in size and how long they persist to enable reinsurers to recoup the full ‘payback’ they may be seeking.