Quota shares & retro the most likely source of ILS losses from Florence: Fitch

by Artemis on September 20, 2018

Collateralized reinsurance quota shares and retrocessional protections that sit in lower layers of cedant’s towers are the most likely source of ILS market losses from hurricane Florence, according to rating agency Fitch.

Fitch Ratings today echoed what we have been saying, that losses from hurricane Florence and not expected to be significant for the insurance-linked securities (ILS) market.

The agency does note that while the, “ILS market is not expected to be materially exposed to Hurricane Florence,” there will likely be some impact to those ILS funds or collateralized retrocessionaires who participate in lower layers of cedant reinsurance and retro programs.

“Collateralized reinsurance and ILS funds that participate on lower layer quota share reinsurance or retrocession agreements with cedants that were particularly exposed to the region would be the most likely source of potential modest loss in the ILS market,” Fitch Ratings said.

Fitch also highlights the FloodSmart Re cat bond, noting that should the National Flood Insurance Program’s flood claims from hurricane Florence surpass $5 billion, this catastrophe bond would attach and the ILS investors backing it begin to suffer losses.

Given the reduction in Florence’s wind speeds as it approached the United States, flood losses are expected to be the major economic hit and a significant insured hit as well.

“Flood losses are expected to significantly contribute to overall losses from Florence as storm surge and historic levels of rainfall have inundated coastal area as well as a significant number of inland counties,” Fitch explained.

But adding, “Flood risk in the U.S. is almost entirely assumed by the NFIP as standard homeowners’ insurance policies typically do not cover the peril.”

The private flood insurance market is concentrated on a handful of surplus lines underwriters, admitted companies, and Lloyd’s of London syndicates, Fitch continued to explain, also highlighting that much of the flood economic loss will not even be covered by insurance given the low take up rates.

Overall, Fitch Ratings expects that hurricane Florence will be an earnings event for private insurers, resulting in limited or no rating actions to companies it covers.

Fitch expects there will be “substantial insured losses from water related claims” that fall to the NFIP, private flood insurance carriers and auto insurance underwriters, while only a modest level of losses will eventually be ceded to the traditional reinsurance and insurance-linked securities (ILS) markets.

Also read:

– ILS fund values stabilise, some recover, after hurricane Florence.

– ILS industry recognised Florence would not be market-changing.

Hurricane Florence wind & storm surge loss up to $4.6bn: AIR.

FedNat won’t tap reinsurance for hurricane Florence losses

Florence saw less ILW and live cat activity than other recent storms.

Hurricane Florence loss only $2.5bn (ex-NFIP), says Karen Clark & Co.

Reinsurance & ILS market share of Florence loss likely minimal: Analysts.

Cat bond index only fell 1.15% on hurricane Florence threat.

Hurricane Florence’s 1,000 year rains flood the Carolina’s.

Model mean projects $3bn to $3.5bn wind loss from Florence.

Hurricane Florence re/insurance losses will be manageable: S&P.

Hurricane Florence wind & surge insured loss potential put at $3bn to $5bn: Corelogic.

A handful of cat bonds traded on hurricane Florence approach.

ILS fund values fluctuate on Florence, threat now reduced.

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