AIR: Hurricane Delta insured losses up to $3 billion

Catastrophe risk modelling specialist AIR Worldwide adds a dose of uncertainty around the whole hurricane Delta loss estimate story, saying that it puts the insurance and reinsurance market impacts from the storm in a wide range from $1 billion to as high as $3 billion.

Image source: The Advocate. Photo by: Bill Feig/AP

AIR’s estimate spans most of the other catastrophe modellers, as the company warns of the potential for loss amplification due to hurricane Delta’s impacts coming so soon after hurricane Laura’s.

AIR’s estimate of up to $3 billion is for insured losses to onshore property resulting from wind and storm surge only, so does not include any offshore loss impacts.

This compares to Karen Clark & Company’s estimate that onshore insured losses would come close to close to $1.25 billion.

As well as to CoreLogic’s estimate that onshore and offshore insurance market losses from Delta will be between $1.5 billion and $2.7 billion.

AIR said that its modelling approach treats hurricanes Delta and Laura as independent events, which is reflected in the estimate.

“Given that the two events affected the same area within a relatively short period of time, however, there are several aspects worth noting,” AIR said.

AIR explained:

Before Delta made landfall, aerial imagery showed that many structures in these areas had blue tarps on their roofs; after Delta many of these structures still had blue tarps on their roofs. On the one hand, wind-driven rain and wind-borne debris impacts following Delta could have exacerbated the damage caused by Laura to these properties. Furthermore, structures that may have been weakened by Laura’s winds may have been further damaged by Delta, despite its moderate winds. On the other hand, it could be posited that structures that had the potential to be damaged were already damaged by the relatively-stronger Hurricane Laura, and therefore, not much was left to be damaged by Delta.

It is important to note that two hurricanes impacting the same area within a short period of time is not a new phenomenon; in 2004 Hurricane Frances and Hurricane Jeanne both impacted virtually the same place on the east coast of Florida within six weeks of each other. There were reports of loss amplification at the time, particularly in Florida; given these back-to-back events, the same cannot be ruled out in Louisiana, despite the fact that they are different events and fall under different insurance conditions.

Large surge occurred far east of Delta’s Creole, Louisiana, landfall because of the storm core’s elliptical shape, featuring a huge eye elongated in the east-west direction. Compared to Laura, the maximum surge elevation of Delta was lower, except in southern-central Louisiana from Freshwater Canal Locks eastward to Morgan City, including Vermillion Bay and nearby bays, where surge inundation was most impactful. The parishes more heavily impacted by Delta were farther east than those more heavily impacted by Laura.

According to AIR, the storm flooded and blew tarps off homes and businesses already damaged by Laura and blew shingles off roofs that had not been impacted by the previous storm in the vicinity of landfall, the coastal area of Cameron Parish, and to the northwest, including Lake Charles. The storm also blew shingles off roofs in these areas that had not been impacted by Laura, including Lafayette and environs.

AIR’s estimate of insured losses covers damage to onshore residential, commercial, and industrial properties and automobiles for their building, contents, and time element coverage.

Given the reporting of hurricane Delta as a discreet event to Laura, which at least AIR has explicitly explained to be the case, it makes it very hard for the industry to truly unravel the impacts of this most recent storm, compared to the previous loss event, which makes deriving how it could affect reinsurance contracts and the aggregation of losses also particularly challenging, we’d imagine.

Still, as we explained earlier today, the data continues to point to the ultimate onshore and offshore insurance industry loss from hurricane Delta falling somewhere in the $2 billion area and this will be a likely starting point for many.