AIR pegs Hurricane Maria insured losses at huge $40bn to $85bn

Hurricane Maria is estimated to have caused insurance and reinsurance industry losses of between $40 billion and $85 billion after its devastating passage through the Caribbean, according to AIR Worldwide, which is considerably higher than the market had been expecting.

The insurance and reinsurance market had been expecting a hurricane Maria impact of closer to $15 billion to $20 billion, after economic losses had been provisionally estimated at up to $50 billion.

But the estimate from catastrophe risk modeller AIR Worldwide is significantly higher than the market anticipated and if accurate it could put hurricane Maria as the most costly hurricane to the re/insurance industry this year.

Puerto Rico, which has been particularly badly impacted by hurricane Maria, is though to account for as much as 85% of the total insurance industry loss, which could be $34 billion to $72 billion.

At this level of losses the reinsurance market will be taking a significant proportion of the eventual industry loss, with insurers operating in the Caribbean tending to utilise more reinsurance coverage.

It could mean more of the loss falls to traditional reinsurance than to collateralised or ILS coverage as well, as the major global reinsurers tend to dominate programs in the region.

But there is industry exposure for ILS fund managers and other collateralised reinsurance vehicles, particularly on the retrocession side and through reinsurer owned sidecar vehicles, as well as some private ILS.

There are catastrophe bonds which include Puerto Rico hurricanes as a covered peril, with one aggregate Kilimanjaro Re cat bond from Everest Re including the island in its coverage. Otherwise, most of the Puerto Rico exposure to cat bonds falls within two AIG sponsored Tradewynd cat bonds, although the expected loss level of exposure to the island in these deals is very small.

The size of AIR’s industry loss estimate has already raised questions among industry analysts, some of whom are questioning the range and believe the eventual industry exposure could be even lower than the bottom end of it.

But AIR’s estimate reflects the enormous damage and disruption that hurricane Maria has caused and with Puerto Rico badly hit the final cost to insurance and reinsurance interests is going to be very high.

Added to hurricane Harvey and hurricane Irma, the addition of hurricane Maria all but ensures the hurricane season will be a $100 billion+ loss for the sector. Sufficient to move pricing? Perhaps on a regional and loss-hit basis.

A major hurricane Maria loss could also result in some companies suffering outsized impacts, if they hold a particularly high market share in Puerto Rico and the Caribbean. It will be interesting to see how the pre-announcements of losses from major reinsurers start to rise following this latest major storm loss.

AIR noted that its estimate of losses includes demand surge which amplifies insured losses and which it warns could be particularly high given the fact we’ve seen three major hurricanes in such a short space of time, as well as insured physical damage to onshore property (residential, commercial, and industrial) and autos from wind and precipitation-induced flood damage; insured loss to property contents; losses from business interruption; losses to industrial facilities; and additional living expenses (ALE) for residential insurance claims.

The estimates do not include infrastructure losses; hazardous waste cleanup costs, vandalism, or civil commotion whether directly or indirectly caused by the event; losses to offshore properties, pleasure boats, and marine craft; losses resulting from the compromise of existing defenses (e.g., levees); and losses to uninsured properties.

AIR Worldwide explained the damage caused by hurricane Maria:

Hurricane Maria was another major catastrophe for the central Caribbean region, compounding the damage done by Hurricane Irma just two weeks ago. It spared a few islands devastated by Irma, but brought additional destruction to others, and wrecked some locations that had escaped Irma’s wrath.

Hurricane Maria slammed into Dominica on Tuesday, September 19th as a Category 5 storm, devastating the island and triggering widespread flooding in adjacent Guadeloupe. It weakened briefly to a Category 4, then intensified again to Category 5 as it cut west-northwest over the warm waters of the northeastern Caribbean Sea. The eyewall brushed the western edge of St. Croix in the Virgin Islands on Tuesday night, bringing storm surge and large waves to southern shores.

Maria was downgraded slightly to Category 4 before it made landfall on Puerto Rico near the town of Yabucoa at 6:15 a.m. ET, Wednesday, September 20th with maximum sustained winds of 155 mph. This was Puerto Rico’s first direct landfall from a Category 4 tropical cyclone since the notorious San Ciprian hurricane in 1932. Maria lost some organization as it interacted with Puerto Rico’s mountains but brought a storm surge anticipated to be 6 to 9 feet in some areas and inundated the country with 12 to 18 inches of rain, with higher amounts in some locations. Maintaining its track, it then passed close offshore of the northeast coast of Hispaniola delivering heavy precipitation, Category 3 winds, and storm surge to the northern Dominican Republic.

Islands in the Caribbean devastated by the storm, and by Hurricane Irma two weeks earlier are in the early stages of what will inevitably be a very lengthy recovery period. It is abundantly clear that this has been a major catastrophe for the region.

More than 3 million people in Puerto Rico, for example, remain without electricity, drinking water, and gas; other essentials are in short supply. Communications are challenging, with 95% of cell phone towers reportedly toppled. Many towns have been cut off by landslides, floods, or torrents of muddy water; widespread damage is reported.

As heavy precipitation continued, the dam on the Guajataca River was significantly compromised and was deemed in danger of an imminent break Friday afternoon. Some 70,000 people downstream were advised to evacuate immediately. The dam is an earthen structure built in 1929 to provide drinking water, irrigation, and power generation. It has not failed, but remains in danger of doing so.