Risk modelling company Karen Clark & Company (KCC) has estimated that the insurance and reinsurance industry will be liable for an industry loss of around $7 billion from hurricane Matthew’s impact on the United States.
KCC is the second risk modelling firm to publish an official estimate of insurance and reinsurance losses from hurricane Matthew, after CoreLogic put its estimate at $4 billion to $6 billion.
KCC aims slightly higher, saying that based on high-resolution storm surge, inland flooding and wind models, the firm estimates that re/insurers will pay $7 billion for hurricane Matthew damage in the U.S.
$3.48 billion of this is down to wind damage, $0.04 billion due to storm surge and $3.43 billion from inland flooding, a total of $6.95 billion.
In terms of economic loss, KCC puts the figure at $16.31 billion. Interestingly, KCC believes that 100% of hurricane Matthew’s wind damage will be covered by insurance, while a much smaller proportion of storm surge and inland flooding will hit insurers or reinsurers.
At a near $7 billion insurance industry loss hurricane Matthew will eat into reinsurance layers. For the ILS market, it would still be expected to leave most catastrophe bonds safe, but cause attritional losses to some collateralised reinsurance contracts and perhaps hit a few sidecars structures to a degree as well.
Overall, at this level of loss, the impact to ILS funds and investors will be relatively limited, although they will certainly pay their share of the industry loss.
Read our previous articles on hurricane Matthew: