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Hurricane Ian – the biggest insured loss ever at over $75bn: Stonybrook


Hurricane Ian is expected to be the largest single insurance industry loss event ever witnessed, with the final bill estimated to be above $75 billion once LAE is factored in, according to analysis from Stonybrook Capital.

stonybrook-capital-logoDriving home an expectation that hurricane Ian could be an industry-changing event, Stonybrook Capital, a specialist strategic advisory and investment banking firm focused exclusively on the insurance and reinsurance industry, said that the effects of the major hurricane’s landfall will be “profound and widespread” across the sector.

On the estimate, Stonybrook looked at all the main risk modeller estimates and added 20% for litigation where it hadn’t been included, which provided an average estimate of hurricane industry losses of $59.45 billion.

Then, the analysis added loss adjustment expenses, (LAE) which Stonybrook believes could be a significant addition, at around $12 billion or so, while non-modelled exposures could add another $3 billion.

Summing up though, they said, “Stonybrook estimates that the all-in insured loss and LAE is over $75B, perhaps significantly over, and that it represents more than 10% of US 2022 P&C industry direct premiums.”

In terms of the hit to the US insurance industry’s annual loss ratio, Stonybrook says hurricane Ian may only fall behind the 2001 terror attacks and 2005’s Hurricane Katrina.

“As this becomes recognized, the market effects will be profound and widespread,” the company cautions.

The Florida insurance marketplace is set to feel the effects of hurricane Ian the most, with Stonybrook saying of Florida domestic or US coastal-focused carriers, “Many are now in jeopardy.”

The analysis also notes that another big event before June next year could see these carriers lacking reinsurance protection, which would result in far greater net losses than will be seen with Ian, where the reinsurance industry, both public and private, will take much of the burden.

Because of the impacts of hurricane Ian, Stonybrook warns that Florida Citizens may become even more the insurer of last resort, while Florida domestic carriers could take significant double-digit hits to their capital after the storm.

On the reinsurance market, Stonybrook says, “We estimate global reinsurer portfolios on average will lose close to a year’s earnings after tax: simplistically a very bad earnings event for many of them, and a capital hit to others.”

After Ian, the company expects reinsurers will “critically assess their catastrophe appetites worldwide” which could exacerbate capacity levels come the renewals at the end of the year.

On the insurance-linked securities (ILS) market, Stonybrook Capital warns of the significant loss for the sector.

They explained, “As was seen in Katrina, we believe that it is likely that 100% of 2022 occurrence Cat XOL retrocessions sustained total losses, although relatively less capacity was placed than in 2005. Ian is also a record loss to the Cat bond market. Not all bonds are exposed in Florida and not all are occurrence based. Still, a meaningful share of total limits outstanding likely are totaled.

“Many diversified Cat funds are now in deep in the red for the year (if not earlier), and all will have “trapped capital” again. Some will now report experience that is far below their investor representations in 5 of the last 7 years.”

Finally, they also noted that raising new capital for ILS funds won’t get any easier and that investors increasingly have other options available to them.

Saying, “With the alternative of short term, rated, corporate, high yield returns trending above 7%, there will be less institutional investor interest in backing any form of Cat risk for 2023.”

So, the range of industry loss estimations gets even wider, but the inclusion of LAE and litigation was always going to boost the average far higher.

As data points such as this come in, it drives home the importance of prudent and conservative reserving after hurricane Ian.

Industry experience gained from recent years’ major catastrophe losses is that they tend to settle above the average, making initial reserving levels critical.

Read all of our coverage of hurricane Ian, and our analysis on the potential market losses, here.

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

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