Hurricane Zeta wind & surge insured losses estimated at $4.4bn by KCC

Hurricane Zeta’s wind and storm surge impacts on Mexico and the United States are expected to cost the insurance and reinsurance market close to $4.4 billion, according to an early estimate from Karen Clark & Company.

The catastrophe risk modeller is first out of the blocks with a post-landfall estimate of the insurance and reinsurance market impact for recent hurricane Zeta, as it tends to be with each storm.

But with Zeta, the figure is perhaps a little higher than some had been anticipating.

The reason could be the rapid movement inland and the fact wind damage from hurricane Zeta has been reported far to the north, as we explained last week right up to North Carolina.

As a result, the damage with hurricane Zeta is not just limited to the coastal landfall region, there are insurance claims from property damage to be settled far into the U.S., which will lift the ultimate industry loss and likely the share for reinsurance capital to assume.

The rapid movement inland does mean that coastal impacts and concentrations of property losses may be less than with other recent hurricanes that affected the Gulf Coast, which may help the regionally active catastrophe exposed property insurers.

That could mean some of the aggregate or per-occurrence reinsurance programs of those regionally concentrated, coastal property insurers are safer than with other recent storms. But the wide swathe of damage up country, could exacerbate the aggregate deductible erosion for nationwide insurers of property, potentially also eroding reinsurance and catastrophe bond retention even further.

KCC said that it estimates that insured losses to onshore properties will come near to $4.4 billion, made up of $4.3 billion of wind and storm surge losses in the U.S. and another $80 million of insured wind losses in Mexico.

KCC’s industry loss estimate includes privately insured wind and storm surge damage to residential, commercial,
and industrial properties and automobiles, but does not include any NFIP flood insurance losses, any insured losses to offshore energy assets, or any potential impacts on losses caused by the COVID-19 pandemic.

As the first industry loss estimate and given it doesn’t include any offshore impacts, the full cost to the insurance and reinsurance market could well be higher than this $4.4 billion figure and there is the potential for some attritional impacts to certain insurance-linked securities (ILS) fund positions, we’d imagine.

In particular, as the year progresses and the frequency of catastrophe events continues, the threat to aggregate contracts, in particular retro, is likely increasing.

KCC explained the impacts from hurricane Zeta in more detail:

Impacts in Mexico
Zeta impacted the Yucatan Peninsula as a Category 1 storm with maximum sustained wind speeds of 80 mph. It brought wind, heavy rains and storm surge flooding to Cancun and other resort towns along the Peninsula, however the area largely managed to avoid significant damage.

Wind Impacts in the US
Widespread structural damage due to direct wind impacts was limited to small towns in coastal areas of southeastern Louisiana and southwestern Mississippi. New Orleans experienced light wind damage to roofs and facades and isolated instances of structural damage caused by fallen trees. Because of the fast forward speed and slow decay rate, Zeta caused widespread damage hundreds of miles inland. Inland damage was most significant in northern Georgia, and particularly around Atlanta, due to downed trees and power lines. Insured losses are likely to be highest in Louisiana, Mississippi and Georgia. Power outages extended across the southeast from Louisiana to Virginia, and at the height of the storm, more than 2.5 million customers lost power.

Storm Surge Impacts in the US
Coastal flooding also caused damage in southeastern Louisiana, southern Mississippi, and southwestern Alabama. Three breaches in Gran Isle’s levee, which was already damaged by Cristobal earlier this year, caused flooding to coastal structures in Louisiana. Mississippi saw significant flooding from storm surge in coastal areas including Biloxi and Pass Christian. Impacted areas in Alabama include Gulf Shores, Orange Beach, and Mobile.