Reinsurers & ILS to assume “virtually all” Irma-related loss creep: Analysts

Catastrophe losses in the second-quarter of 2018 appear manageable for property and casualty (P&C) insurers and reinsurers, however, analysts warn that rising loss trends will likely depress reserves, and that reinsurance capital is expected to assume the large majority of Hurricane Irma’s loss creep.

Analysts at Keefe, Bruyette & Woods (KBW) believe P&C re/insurers’ Q2 2018 catastrophe losses appear “very manageable”, estimating global insured catastrophe losses for the quarter of roughly $9.1 billion, as they previewed the market in advance of the results season.

However, while natural catastrophe losses during the period have been relatively benign, apart from some adverse weather in Canada and the mid-West, analysts warn that the majority of reinsurers’ reserve development will include a portion of hurricane Irma loss creep.

This consists of demand surge, assignment of benefits (AOB) related litigation, and higher repair costs as older homes are brought up to current Florida building codes.

As noted by KBW, the loss creep from hurricane Irma has continued, with PCS’ insured loss estimate growing by roughly $4.5 billion year-to-date, with it now exceeding the initial loss estimate of $18 billion by approximately 8%.

According to analysts, publicly traded Floridian homeowners insurers utilise low reinsurance attachment points, which suggests that their reinsurance partners will “bear virtually all of any Irma-related loss creep.”

Supporting this expectation, Florida headquartered primary insurer, Universal Insurance Holdings, said in April that it is set to pass on another $50 million of its Irma loss creep to its reinsurance panel, which, combined with previously announced gross losses and loss adjustment expenses, sees the firm retain just $29.2 million of its total $502 million loss from the event.

Universal, as well as other insurers in the region increasingly leverage insurance-linked securities (ILS) and other collateralized reinsurance markets to augment their coverage, which has resulted in the capital markets assuming a significant share of this Irma-related loss creep.

Loss creep from hurricane Irma continues to impact the insurance and reinsurance linked fund industry, with a number of ILS and collateralized reinsurance vehicles recording negative performance for numerous months in 2018, which has subsequently led to divergent performance across the industry.