Harvey industry loss seen up to $25bn (ex-NFIP) by Morgan Stanley


Analysts have updated their estimates for the insurance and reinsurance loss caused by hurricane Harvey’s impacts on Texas and the surrounding area, with Morgan Stanley now pegging the industry loss at up to $40 billion including the NFIP portion of flood losses, or up to $25 billion for the private market alone.

Hurricane HarveyThe analysts suggest re/insurance losses in a range of $15 billion to $40 billion, including the National Flood Insurance Program (NFIP), or $10 billion to $25 billion for private re/insurance alone to pay, with individual company exposure expected to be manageable.

The analysts break down their estimate as follows and explain their rationale for the estimates:

  1. $2-4b wind damage,
  2. $3-6b auto losses,
  3. $5-15b commercial flooding, and
  4. $5-15b National Flood Insurance Program (NFIP) claims.

Modeling firms RMS and AIR project low single digit billions of wind-related losses. Houston metro area has ~4m vehicles. Assuming ~70% have comprehensive coverage, ~20% of the area is flooded, and average claims of $5- 10k, total auto losses could range $3-6b. Commercial flooding losses are a wild card and difficult to estimate.

2001 Tropical Storm Allison caused ~$3.5b insured losses (ex. NFIP), mostly from flooding. Considering Harvey’s larger impacted area, heavier rain (50+ inches vs. 40 in Allison), and exposure growth (population +20% since 2001), we apply a 1.5-4x multiple to arrive at $5-15b commercial flooding losses.

Similarly, it is highly difficult to estimate NFIP claims. NFIP paid out ~$1.1b to ~30k claims during Allison. RMS estimates ~500k policies could be affected by Harvey, implying ~15x of Allison payout. We use a 5-15x multiplier to calculate $5-15b NFIP losses. By comparison, NFIP paid $16.3b for Katrina and $8.6b for Sandy.

The analysts expect “a significant portion” of the private market loss will fall to reinsurance capital, but says the breakdown remains unclear due to various reinsurance attaching to commercial exposures.

They also note that at their $5 billion plus NFIP flood loss they are expecting the NFIP’s reinsurance layer to be triggered and begin paying out, potentially becoming a total loss, as we discussed in this article yesterday.

If Morgan Stanley’s upper end estimate proves correct then the reinsurers on the NFIP program will pay out in full.

The analysts continue to believe that wherever losses from hurricane Harvey level out, they will not be sufficient to turn property insurance or reinsurance rates and will only act as another stabilising element as the next sets of renewals approach.

Also read:

Munich, Swiss, Berkshire are reinsurers most exposed to Harvey: RBC.

NFIP reinsurance program could be wiped out by Harvey: Fitch.

Harvey wind, surge & flood economic loss could be $70-90bn: RMS.

Harvey won’t cause cat bond loss but could erode aggregates: Paul Schultz.

Harvey economic loss could be up to $75bn: Moody’s Analytics.

ILS can help to narrow the flood risk protection gap: Miller, JLT Capital Markets.

Aggregate cat bonds, private ILS seen most exposed to Harvey.

Hurricane Harvey floods could hit NFIP’s $1 billion reinsurance layer.

Markel CATCo sees minimal Harvey hit at below $10bn industry loss.

Hurricane Harvey loss up to $20bn, unlikely to move pricing: Analysts.

Cat bond funds don’t expect Harvey loss, private ILS more exposed.

AIR puts Harvey wind & surge insured loss at up to $2.3bn

Cat bond market drops on Harvey, close shave for Fonden 2017 deal?

Live cat trades completed on hurricane Harvey threat.

Half of hurricane Harvey loss could fall to reinsurance: J.P. Morgan.

Hurricane Harvey – catastrophe bond exposure.

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