Hurricane Sally industry loss said in the low billions, ILS impact said slight

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Hurricane Sally’s late intensification before landfall yesterday is expected to mean that overall private insurance and reinsurance market losses from the storm reach into the low billions, with any impact to ILS positions expected to be minimal.

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Photo by: Tony Giberson, Pensacola News Journal

As we explained just prior to hurricane Sally’s landfall yesterday, the fact the hurricane ramped up its sustained wind speeds to 105 mph on its final approach to land will likely have raised the industry loss somewhat.

Just before that intensification, our sources said that modelled estimates for the potential insurance market impact from hurricane Sally stood in the low single-digit billions of dollars.

With the increase in wind speeds we’re now told that Sally could result in a loss closer to the mid-single digit billions of dollars, once all private insurance and reinsurance market impacts are calculated and counted up.

Hurricane Sally’s impacts from wind and storm surge have certainly been more significant than had been anticipated 24 hours before landfall, likely due to the intensification on approach.

Damage has been quite widespread along the coast, in particular to towns like Pensacola in Florida, or Gulf Shores, Alabama, where significant damage has been seen, as well as widespread flooding.

But still, the rainfall related impacts are the real story and the real toll to lives and livelihoods will come from the up to 30 inches or more of rains that have fallen in some regions around the northern Gulf Coast.

Widespread flooding has been seen in the region, resulting in significant property damage.

As ever, the flood impacts will largely fall to the NFIP, or go uninsured, with only a relatively small proportion likely falling to the private insurance marketplace.

This morning, Thursday 17th, our sources are largely opting for a sub-$5 billion industry loss from hurricane Sally. Estimates should emerge over the coming days and ranges may be broader than seen for recent storms, given uncertainty over where losses will fall from water related damages.

It seems certain that hurricane Sally will become the latest billion dollar industry loss event of 2020 anyway, further exacerbating any erosion of aggregate reinsurance layer deductibles after the costly weather and catastrophe year in the United States so far.

For the insurance-linked securities (ILS) market, it looks as if hurricane Sally will be another event that dents the returns of the current month somewhat, with some attritional impacts flowing to certain ILS funds, sidecars and perhaps other collateralised reinsurance arrangements.

But overall, our sources suggest Sally won’t be a particular concern for third-party capital and the impacts to ILS funds will be slight and in some cases ILS funds may escape any meaningful impact from this storm.

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