Midwest Derecho insured property loss seen at $5bn by Holborn

Broking group Holborn said that it believes, based on its roughly 25% property market share in the state of Iowa, that August’s severe Derecho storm event in the Midwest United States could be a $5 billion insurance and reinsurance market loss event.

The Derecho struck the Iowa and Illinois region on August 10th driving a line of severe thunderstorms and convective weather straight through the states.

Damage to agriculture was immediately seen to be significant, but with strong hurricane force straight-line winds, the property damage in the region, particularly Iowa, was especially severe.

The Derecho event was quickly said to be a multi-billion dollar insurance and reinsurance market loss, but estimates had been ranging around the $3.75 billion range.

Early estimates suggested that the Derecho could drive economic costs of around $6.5 billion, with at least half of this figure assumed to be covered by insurance.

But broker Holborn believes the total bill will be a fair amount higher, saying in a recent report, “Holborn currently represents approximately 25% of the property insurance market in the state of Iowa. Based on information received from our clients, we estimate the property insured estimate to be $5 billion.”

The brokerage continued, “Commonly used catastrophe models suggest that a $5 billion event like this, would occur only once in more than 1,000 years. With an historically large event such as this, the models will likely require further calibration.”

Locally, the Derecho is seen as one of the largest insurance market loss events of recent history, Holborn noted.

“In Iowa alone, the derecho is estimated to be at well over 4.5 times higher than the largest event in recent history, even after adjusting for population changes and claims inflation,” Holborn said.

More broadly, “Across all of the Midwest, the Derecho, which largely impacted Iowa, is looking to be the 4th largest event in recent history. If we exclude any adjustment for claims inflation or population change, it becomes the 3rd largest after the super-storms of 2011.”

As a result, the impacts of the Derecho will almost certainly have fed into some insurance-linked securities (ILS) fund strategies, definitely into some quota share and private ILS or collateralized reinsurance arrangements.