The impact to insurance and reinsurance interests from the wind and storm surge damage caused by hurricane Florence is estimated to be in a range from $1.7 billion to as much as $4.6 billion, by AIR Worldwide.
“Hurricane Florence, once a Category 4 storm, made landfall near Wrightsville Beach, North Carolina, at about 7:15 a.m. on Friday, as a Category 1 storm with 90 mph winds,” commented Dr. Peter Sousounis, vice president and director or meteorology, AIR Worldwide. “As Florence approached the East Coast, it grew in size and exhibited multiple wind maxima, which are found in storms with abnormally low central pressure for a given maximum wind speed. As a consequence, strong winds extended well north of the landfall location up to the Outer Banks and into Pamlico Sound, which caused a high storm surge in this area.”
AIR noted that the slow movement of Florence has ensured that the main impact will be from precipitation induced flooding, however storm surge will be a component of the insurance and reinsurance market loss, with up to 10 feet recorded in coastal North Carolina.
As much as 35.93 inches of rain fell in Elizabethtown, North Carolina, which has now broken the record set by Hurricane Floyd in 1999, while over 30 inches of rain fell on Swansboro, North Carolina and more widely 20 inches was reported.
AIR said that wind damage in the affected area has been seen to be consistent with that of a Category 1 hurricane, including downed trees causing damage to homes and automobiles, downed utility poles, and shingle loss on roofs, with isolated cases of more extensive roof damage.
The size of the loss estimate reported by AIR confirms suspicions that the primary market will retain the bulk of the loss from hurricane Florence, with only a relatively small amount falling to reinsurance markets and some ILS funds or collateralized vehicles and retrocessionaires.
AIR explained what is in and what is out of its early estimate of the insurance market loss from hurricane Florence:
AIR’s modeled insured loss estimates include:
- Insured physical damage to property (residential, commercial, industrial, auto), both structures and their contents
- Additional living expenses (ALE) for residential claims
- For residential lines, 5% of modeled storm surge damage as wind losses
- For commercial lines, insured physical damage to structures and contents, and business interruption directly caused by storm surge (other flood losses are not modeled or reflected in estimates; business interruption losses include direct and indirect losses for insured risks that experience physical damage)
- For the automobile line, estimates reflect AIR’s view that insurers will pay 100% of the storm surge damage
- 2018 indexed take-up rates
AIR’s modeled insured loss estimates do not include:
- Precipitation-induced flooding
- Losses paid out by the National Flood Insurance Program
- Losses resulting from the compromise of existing defenses (e.g., natural and man-made levees)
- Losses to uninsured properties
- Losses to infrastructure
- Losses to inland marine, marine cargo and hull, and pleasure boats
- Losses from extra-contractual obligations
- Losses from hazardous waste cleanup, vandalism, or civil commotion, whether directly or indirectly caused by the event
- Other non-modeled losses, including those resulting from tornadoes spawned by the storm
- Losses for U.S. offshore assets and non-U.S. property