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Original Risk: A Society for Change Agents

Nate’s Cat 1 hurricane losses expected to be relatively low


Hurricane Nate made landfall on the U.S. Gulf Coast as a Category 1 storm with sustained winds of around 85 mph over the weekend, which has the potential to exacerbate losses for some insurance and reinsurance firms, but overall is expected to be a relatively small event, compared to other recent hurricanes.

Hurricane Nate did not intensify significantly on its path across the Gulf, making it to sustained winds of 85 mph and gusts of over 100 mph when it made landfall near the mouth of the Mississippi River on Saturday evening, which has likely saved the re/insurance and ILS industry from a fourth major storm loss of the year.

Nate made a second landfall at Biloxi, Mississippi where there have been reports of storm surge damage to buildings including some of the casinos situated there, but even the storm surge did not live up to the heights forecast, as AIR Worldwide explained, “due to the storm’s compact size and relatively fast forward speed, the highest recorded surge levels topped off at between 4 and 5 feet.”

Nate’s wind speeds were in the end too low for significant structural damage, and the wind speeds tailed off quickly as the storm moved in land and weakened, while the storm surge inundation has created some coastal impacts and rainfall some flooding.

Analysts said that they expect the insurance and reinsurance industry loss from hurricane Nate to be relatively low, although it does add to the significant loss burden the industry and ILS players now face.

It’s far too early to put a number on the impact, given the recency of hurricane Nate’s landfall, but industry sources all suggest a relatively low loss tally, as do the equity analysts.

Both Keefe, Bruyette & Woods and Morgan Stanley’s analysts said that even though it will only contribute a small additional loss and is expected to hit primary insurers more than reinsurers, it will add to the pressure for higher rates following third-quarter catastrophe loss events.

However the additional pressure for higher rates is limited by the size of the industry exposure to Nate, KBW said, and the sector remains strongly capitalised even after recent loss events.

Hurricane Nate, even at a small industry loss, does have the potential to add to aggregate deductible erosion for reinsurance, catastrophe bonds and ILS where the storm causes a sufficient loss to qualify as an event. For some contracts this could be the fourth or more qualifying catastrophe loss in less than two months.

But this impact will be limited and possibly only on affect a very small number of exposed aggregate retrocession arrangements, with most likely to find the relevant losses too low to enable the storm to qualify, or for it to fall below franchise deductibles.

Therefore Nate is expected to be only a small contributor to 2017 catastrophe losses for any exposed reinsurers, ILS funds and collateralized reinsurers at this stage.

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