Isaac has now been downgraded to a tropical storm once again, with maximum sustained winds of 50mph the storm is continuing to slowly move inland bringing heavy rainfall to many areas. The threat of storm surge is now diminishing and Isaac’s winds are dropping to levels where any damage is unlikely. Isaac has caused extensive damage in the state of Louisiana but at the moment it seems like insurers could get off relatively lightly as many of their policies will not cover rain induced flooding or storm surge.
Early estimates of insured losses should be taken lightly and be expected to rise as more accurate information on the extent of property losses becomes available over the next few days. Risk modeller EQECAT is the first of the big three modelling firms to release an estimate. EQECAT has separated offshore losses to the energy industry and onshore property insured losses into two totals.
For offshore losses, EQECAT estimates that economic losses to offshore energy assets (platforms, pipelines, and shut-in production) are expected to range from $500m to $1 billion from Isaac. They say that reliable insured exposure information is not available and so their estimate is for economic losses only.
For onshore insured property losses (personal, commercial, and industrial, including time element) EQECAT estimates that Isaac has caused somewhere between $500m and $1.5 billion of losses.
Rod Fox, the CEO of broker TigerRisk Partners, is quoted by the Wall Street Journal as estimating that Isaac will result in an insured loss of between $1 billion and $2 billion. Other industry participants we’ve spoken to this morning have all been giving us estimates around the upper end of that range.
Of course the actual economic cost of hurricane Isaac is likely to be significantly higher. The insurance industry will feel some of the losses from flood and storm surge but many Americans do not have those perils included in their home insurance cover and separate policies are often required, although only around 13% of Americans are thought to have flood cover for their homes. Flood losses will likely result in another impact to the taxpayer funded National Flood Insurance Program. Given the reports that continue to come out of Louisiana of extensive flooding in some towns and cities, the NFIP could be on the hook for another large bill.
There has been some evidence of secondary market catastrophe bond trading, with Louisiana Citizens Pelican Re Ltd. cat bond being the focus of any bids and offers. Volumes are expected to have been low however. Part of the reason for this is likely that the Pelican re cat bond was not widely distributed in the ILS investment market, having been acquired by a smaller number of sophisticated investors who may have been happy to hold their positions as the storm approached.
It’s not possible to tell whether the Pelican Re bond has been impacted at this time as it is triggered based on the ultimate net loss of the sponsor Louisiana Citizens. LA Citizens are said to have a $75m line of credit to erode, followed by a $125m reinsurance policy. Given their exposure to the coastal areas where Isaac came ashore it’s highly likely that this reinsurance policy could be eaten into to some degree. Only once that reinsurance policy is exhausted and their UNL reaches $200m would Pelican Re investors begin to suffer any losses. If Pelican Re does get triggered it will be the first cat bond issued by a state backed insurer to suffer a loss in the markets history.
We’ll update you further as new estimates of the insurance industry loss from hurricane Isaac become available and if any news emerges on the fate of the Pelican Re cat bond.
You can see hurricane Isaac’s position and forecast path here.
Our article from yesterday detailed some of the insurers, reinsurers and catastrophe bonds which were potentially at risk from hurricane Isaac.