Swiss Re Insurance-Linked Fund Management

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Hurricane Laura assessment to take time, double-digit billion loss possible


Hurricane Laura has now been downgraded to a tropical depression as it moves over Arkansas but it has taken more than 24 hours from landfall for its sustained winds to drop below storm strength, with the significant footprint of the large storm likely to make damage assessment take time.

hurricane-laura-landfall-noaa-goes-eastThe insurance and reinsurance market continues to look at industry loss figures that range into the double-digit billions of dollars with hurricane Laura, particularly once any offshore energy losses are factored in and also taking into account the potential for loss amplification and loss adjustment expenses.

Hurricane Laura has impacted a wide swathe of the United States and while some early reports suggest damages are not perhaps as severe as had been expected in some areas, the impacts to property and businesses are significant and widely spread.

Insurance and reinsurance broker Aon’s Impact Forecasting division explained, “The financial toll of Hurricane Laura will be measured in the billions of dollars (USD). The large footprint of damage in Louisiana, Texas, and further inland across the Southeast and Mid-Atlantic will warrant a lengthy period of damage assessment and quantifying the direct fiscal cost to residential and commercial property, vehicles, the energy sector, infrastructure (transportation and electrical), agriculture, and direct net-loss business interruption. The economic toll is likely to reach well into the billions of dollars (USD), and the portion covered by public and private insurance entities is also expected to result in a multi- billion-dollar payout.”

The majority of the wind related damages are expected to be covered by insurance, but some of the storm surge and inland flooding costs will likely be uninsured, Impact Forecasting said, as National Flood Insurance Program (NFIP) uptake rates are low in the region affected.

That aside though, hurricane Laura is still expected to drive losses into the billions of dollars for the insurance and reinsurance sector, with the inevitable hit to insurance-linked securities (ILS) funds and certain other collateralised reinsurance structures as well.

As we explained yesterday, “Industry loss expectations still seem to range from as low as $6 billion to as high as $20 billion for hurricane Laura and even early post-landfall modelled estimates seem to have a large range as well, according to our sources. We are told that some models show something in the range of $8 billion to as high as $14 billion (including offshore energy impacts and some inflation effects for the pandemic), although no official data is available to us at this time and it could be an internal run of a model with a house view of risk, hence we aren’t leading on this information yet.”

Market opinion seems to be that the eventual private insurance market loss will still fall into those ranges, with the modelled $8 billion to $14 billion seeming a reasonable place for the total insurance market costs from hurricane Laura to fall.

The mid-point of that would be just into the double-digit billions of dollars.

Some of our market sources believe that hurricane Laura, once all loss amplification and LAE is factored in, could reach closer to the mid-double-digits, around the $15 billion figure, but for now this seems perhaps a little on the high side.

As ever, it will take time for the loss to develop and the true industry impact to be understood, as well as its ramifications for reinsurance and ILS markets.

Adjusted to today’s figures, 2005’s hurricane Rita still seems a good proxy for hurricane Laura, with it having been estimated to be a $13.5bn industry loss at today’s values by Swiss Re, while 2008’s hurricane Ike, estimated at a $23bn industry loss, seems too high got Laura.

Hence, the $8 billion to $14 billion figures we’ve seen from modelled data still looks a good place to begin the hunt for an industry insured loss figure for Laura’s damages.

Analysts at Bloomberg Intelligence Services have opted for $15 billion as their marker for Laura, which isn’t so far away either.

We expect to begin to see catastrophe risk modeller early estimates for hurricane Laura’s industry loss later today or on Monday. As a reminder though, it’s always important to consider what is included and excluded from a modelled industry loss estimate, as rarely do they try to cover absolutely every cost that may fall to the insurance and reinsurance market.

Also read:

Hurricane Laura industry losses seen as “manageable” by analysts.

Hurricane Laura exposed insurers could tap reinsurance (ALL, TRV, PGR, HIG).

Cat bond trading seen as light as hurricane Laura approached.

Hurricane Laura makes landfall in Louisiana with 150mph Cat 4 winds.

Hurricane Laura analogues cited at up to $6bn insured loss by RMS.

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