According to our industry sources, a preliminary estimate of insurance and reinsurance market losses from hurricane Sally has been pegged at between $1.5 billion and $3.9 billion by catastrophe risk modeller AIR Worldwide.
This is not an official, publicly announced industry loss estimate from AIR, we understand, with that expected to be released over the next few days.
Rather, this preliminary modelled industry loss estimate has been provided to insurance, reinsurance and insurance-linked securities (ILS) market clients by the catastrophe risk modelling firm, as a way to assist them with an early look at potential losses from a storm while it is still in the water, or just after it has struck land.
The range of over $1.5 billion, but up to $3.9 billion, is based on wind and surge related onshore impacts we believe, so likely doesn’t include flood related losses for either private insurance interests or the NFIP.
It’s derived from an analysis of stochastic hurricane events, we understand, that affected the same landfalling region of the U.S. Gulf Coast as hurricane Sally.
This preliminary, modelled industry loss estimate from AIR Worldwide aligns closely with what we’re heard elsewhere in the market.
As we explained earlier today, our sources are largely pointing to a total loss of below $5 billion at this time.
Although, given hurricane Sally’s immense rainfall (30+ inches in places) and with flooding being a bit of a wildcard, it’s always challenging to understand how much of an impact this could be to the private insurance market.
Some flood insurance is covered in certain private market policies, while at the same time the NFIP has a significant reinsurance program that if triggered would escalate the industry loss total.
The 2020 NFIP reinsurance program provides coverage for 10.25% of NFIP flood insurance losses between $4 billion and $6 billion, 34.68% of losses between $6 billion and $8 billion, and 21.8% of losses between $8 billion and $10 billion.
In addition, FEMA has catastrophe bond coverage in-force that attaches at a range of points within those covered layers.
At this stage it’s impossible to speculate on the NFIP’s claims burden from hurricane Sally, although it does seem unlikely they will extend into the reinsurance layer at this time. But it’s still early in the flood impacts from Sally which continue, so this will become clearer over the next few days.
But should the NFIP’s claims from hurricane Sally prove to be significant then the reinsurance layers could potentially come into play, raising private market losses from the storm.