Hurricane Laura industry losses seen as “manageable” by analysts

Insurance and reinsurance industry losses from hurricane Laura’s onslaught of the Louisiana and Texas Gulf Coast region today are expected to be manageable for the industry, despite the intensity of the storm, analysts have said.

Hurricane Laura made landfall early this morning near Cameron, Louisiana as an intense Category 4 storm with 150 mph sustained winds and higher gusts.

Significant damage is anticipated for the region, with storm surge and flooding impacts widely expected, as well as wind damage to properties, coastal assets and also the offshore energy industry in the pre-landfall track vicinity.

But despite being a very large hurricane and one of the most powerful landfalls ever recorded in the region, analysts from Berenberg and KBW believe the insurance and reinsurance market should be able to absorb the losses that result from the storm.

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.

First Berenberg’s analyst team who said in a flash note today that, based on the currently available data (and bear in mind it’s very early morning in the landfall region) hurricane Laura’s losses should be manageable for the industry.

Like we did yesterday, Berenberg compare hurricane Laura to 2005’s Rita (estimated to be a $13.5bn industry loss at today’s values by Swiss Re), or 2008’s Ike (estimated at a $23bn industry loss).

The analysts suggest, “Assuming that losses are similar, they could range from $10bn to $25bn, but the storm surge and offshore energy damage could push the numbers higher.”

Adding that, “On the other hand, the projected path of Laura between Houston and New Orleans may mean that industry losses are less severe, if there is less impact on those more heavily populated areas.”

Berenberg’s analysis suggests that Munich has a circa 5% market share of industry insured hurricane losses, with Swiss Re around 4%, Hannover Re around 1.5% and SCOR around 1%.

The analysts then extrapolate that, “Given how early it is to try to estimate the insured loss from Hurricane Laura, and the significant uncertainty in any such estimates, we highlight that, on our numbers, for every $10bn of industry loss, the companies would be likely to record the following losses: Munich Re c$500m (2.25% of excess capital); Hannover Re $150m (6% of excess capital); Swiss Re c$400m (7% of excess capital); and SCOR $100m (8% of excess capital). Even if these losses were to quadruple, bringing them closer to those of Katrina, the impact on excess capital would still very manageable.”

The earnings hit for the major reinsurance firms all depends on how much of their budgets are used up by the end of this year and with catastrophe losses running above plan for most so far, if hurricane Laura turns into a larger loss event it could impact earnings more significantly, the analysts say.

For now, the Berenberg analysts believe that Laura will fall well within the catastrophe budgets of major reinsurance firms of this kind. But additional hurricane activity through the season could strain things as the season progresses, they note.

Berenberg’s analysts also highlight AXA XL as a company exposed, with a roughly 2.2% share of natural catastrophe losses to be anticipated, so $220m for every $10 billion of industry loss.

But overall, this analyst team believes, “This event should further demonstrate the resilience of the balance sheets of the European reinsurers.”

KBW’s analyst team, meanwhile, also believes the insurance and reinsurance market will easily manage the losses from hurricane Laura as an individual catastrophe event.

“Despite the initial intensity, insured losses (from both wind and flood) should remain quite manageable, since the landfall avoided major cities like Houston and New Orleans,” KBW’s analysts explained.

Adding that hurricane Laura will add to, “accumulating YTD catastrophe losses,” that should “reinforce pricing discipline within and beyond property catastrophe reinsurance.”

Even assuming that the COVID-19 pandemic will add some costs or inflation to the ultimate hurricane Laura industry loss, this should still be a manageable catastrophe event.

Based on an illustrative $8 billion industry loss, KBW’s analysts note that this would still only account for less than 3% of mid-year common equity for the insurance carriers it covers, before considering tax and reinsurance recoveries.

However, some pressure on P&C insurers shares is expected today after the storm, but the main message is that on top of above-plan catastrophe and severe weather losses, hurricane Laura is only likely to put more momentum under rising rates.

Also read:

– 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.