Hurricane Ida to hit quota shares & excess-of-loss reinsurance: Moody’s

Hurricane Ida’s losses are anticipated to flow through the insurance market and hit the reinsurance market through quota shares and excess-of-loss arrangements, according to Moody’s Investors Service.

As we explained this morning, some analysts are anticipating a reasonable share of the insurance market loss from hurricane Ida to flow to reinsurance capital, as primary carriers are already well through their annual catastrophe budgets, in some cases.

Now, Moody’s has confirmed that it is expected the reinsurance market faces impacts both through quota share arrangements, which would include reinsurance sidecars, and also excess-of-loss reinsurance towers.

Primary property and casualty (P&C) insurance carriers and the regional carrier specialists are seen as most vulnerable to the losses from the Category 4 hurricane which struck Louisiana on Sunday, Moody’s explained.

But as these carriers are likely well-insured anyway, it’s safe to assume significant reinsurance support.

“The US Gulf Coast is a peak catastrophe zone for reinsurers, and those with exposure to Louisiana and surrounding states could incur meaningful losses,” Moody’s said.

The large national insurance carriers have robust reinsurance programs in place, as well as greater geographic diversification and better exposure monitoring in place, which should help them avoid too large an impact to their capital.

“We believe these large national carriers can withstand this hurricane event. Regional insurers and state insurance funds face greater negative effects based on their geographic concentrations,” Moody’s continued.

Wind versus water is going to be an issue for hurricane Ida losses, Moody’s also explained, while commercial insurers also face taking a share of the water losses, as commercial policies can include flood risks.

On the commercial insurance side, there are also other vectors of loss to consider, such as business interruption, which Moody’s said could be sizeable given the critical infrastructure damage and power outages.

Louisiana Citizens Property Insurance Corporation is set to absorb a significant share of losses along the Louisiana coast, Moody’s said.

LA Citizens has $545 million in total reinsurance and catastrophe bond coverage in place to pay storm losses, Moody’s noted.

At this stage, it’s hard to tell whether there is any threat to LA Citizens $60 million Catahoula Re Pte. Ltd. (Series 2020-1) catastrophe bond or more recently issued $125 million Pelican IV Re Ltd. (Series 2021-1).

The Catahoula Re cat bond attaches lower down, at $245 million, so that is the cat bond more at-risk from hurricane Ida losses.

Losses are set to flow from a variety of structures and sources, including via insurance-linked securities (ILS), with both quota share ILS deals, such as reinsurance sidecars and private arrangements, as well as excess-of-loss ILS deals potentially exposed.

Also read:

– Hurricane Ida losses to fall more to reinsurance, but renewals influence low.

– Hurricane Ida data suggests $15bn to $25bn industry loss: Twelve Capital.

– Hurricane Ida insured losses expected in the double-digit billions.

– Hurricane Ida cat bond fund impact minor on latest track: Plenum.

– Hurricane Ida hits Cat 4, landfall location key to ILS market impact.