Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Ida reinsurance recoveries significant for some, backup cover likely needed


Information from sources suggests that some primary insurance carriers are likely to recover significant amounts from their reinsurance arrangements after hurricane Ida, while a number of insurers are likely to exhaust their reinsurance towers completely, and some catastrophe bonds remain exposed.

hurricane-ida-satellite-landfallWe understand some brokers have been telling their clients just how bad hurricane Ida is likely to be for their portfolios and our sources suggest that for some of the more coastal focused carriers it could be very impactful.

The more thinly capitalised insurers, or those with dwindling surpluses, are in some cases going to find themselves very exposed after this catastrophe loss, with some likely to need fresh capital in order to continue satisfying rating agencies, we’re told.

Others have ample reinsurance arrangements in place, but are likely to erode a significant proportion of that, in some cases all of their excess-of-loss towers, which suggests there will be some back-up buying going on in the market.

We’ve already heard of some back-up buying that is underway and it’s possible more of this will be required, as more carriers gain increasing clarity over their loss exposure to hurricane Ida.

With the hurricane season’s climatological peak only just passed and more than two months still to run, while the US and California wildfire season is still a threat through to the end of the year, the carriers that have their reinsurance most eroded by Ida are likely to need some fresh cover, it seems.

The insurance and reinsurance market is now anticipating an industry loss of between $25 billion and $35 billion, while if you add in the top-end estimates including the Ida remnant related flooding damage in the north eastern states and the bill to the NFIP then the industry exposure may be over the $35 billion mark, it now seems.

Sources have told us that the information being shared by reinsurance brokers with their clients shows some carriers are expected to make particularly significant recoveries against their large reinsurance towers.

Estimates at this stage are solely based on carrier market share, against certain levels of industry loss, but still this can provide a good indication of how significant reinsurance recoveries are going to be for some.

Two of the carriers expected to make particularly large reinsurance recoveries are Florida-headquartered United Insurance Holdings and FedNat.

Erratum: Updated as we incorrectly mentioned Universal Insurance here. Universal has no Louisiana exposure.

Both of these companies have been expansive in recent years, branching out into other hurricane exposed coastal regions and so both have exposure to Louisiana losses from hurricane Ida.

We understand from sources that these carriers could see reinsurance recoveries of anything between $500 million and $700 million each, depending on exactly how impactful hurricane Ida eventually is and the terms of their coverage.

A reminder, these are market share related estimates, we believe, but they do show that significant reinsurance support will be sought by carriers.

This won’t exhaust reinsurance towers for United and FedNat, but with FedNat considered relatively thinly capitalised, the loss may heighten the need for fresh capital and the prospect of buying more reinsurance cover, or back-up cover, won’t be welcome.

A range of other coastal risk focused primary carriers with significant Louisiana exposure are expected to drain or completely exhaust their reinsurance programmes, we understand.

Among these could be Southern Fidelity, Louisiana Farm Bureau, Allied Trust Insurance, Centauri, Access Home Insurance, Lighthouse Property Insurance, GeoVera, and of course Louisiana Citizens Property Insurance as well.

Those our sources suggest to watch closely for a full exhaustion of their reinsurance towers include Southern Fidelity, Allied Trust Insurance, Access Home Insurance, Louisiana Farm Bureau and also Lighthouse.

Again, note that these are based on market share related estimates, so we cannot be certain. But our sources say these are some of the carriers that reinsurance brokers are discussing as most exposed to the potential for severe stress in the wake of Ida.

On Louisiana Citizens, which of course has a number of catastrophe bond tranches within its reinsurance tower, it’s hard to tell, but sources say that, again on a market share basis, the residual property insurer could be looking at significant reinsurance recoveries into the $300 million to $400 million range.

There is every chance that puts the $60 million Catahoula Re Pte. Ltd. (Series 2020-1) cat bond and the $75 million Class A occurrence tranche of the Pelican IV Re Ltd. (Series 2021-1) cat bond at-risk, should these market share estimates prove accurate.

Finally, sources said that Louisiana Citizens has been told that hurricane Ida, because of its long-lasting impacts over the state, is looking like a particularly high-return period event for the insurer, perhaps as much as a 1-in-1000, we’re told, which would definitely imply its catastrophe bond backed coverage gets hit.

Taking all this into account and remembering again the caveat that we’ll need to wait for official estimates to come from these carriers, replacement reinsurance and back-ups may definitely be required. We’ve already heard of some back-up buying tentatively beginning.

With such significant reinsurance recoveries expected and possibly more cat bond losses, it seems likely this helps to keep the upwards pressure on rates at the January reinsurance renewals in 2022.

Given the fact a number of Florida players are also going to be among the cohort with big reinsurance recoveries, we’d imagine that will also help keep some upwards rate pressure in place, or at the very least rate stability, when we get to the mid-year 2022 renewals as well.

Of course, there are reinsurance recoveries coming for international players, some of the big US primary carriers and also some reinsurers that may tap into retrocession arrangements, but the coastal focused niche US carriers with a catastrophe exposed property leaning are likely to be the hardest hit, our sources tell us.

As we explained yesterday, some catastrophe bonds continue to see price declines in reaction to the threat of hurricane Ida erosion or losses.

Read all of our Hurricane Ida coverage, including loss estimates and analysis.

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.