Recent P&C market commentary from Credit Suisse highlights outsized catastrophe losses for insurers from Texas hailstorms in March, suggesting that the overall industry loss, and any reinsurance or ILS impact, from these events could be higher than estimates suggest.
Property and casualty (P&C) insurer Travelers reported its first-quarter results recently, which revealed higher than expected catastrophe losses as a result of severe hailstorms in Texas during March.
Furthermore, Allstate provided a preliminary catastrophe loss of $638 million for March 2016 alone, driven by severe hailstorms in Southern parts of the U.S., underlining the significant cost U.S. hailstorms caused the re/insurance industry in during the month.
Credit Suisse explains that owing to pre-announcements from a range of companies regarding their Texas hailstorm losses in March, which takes into account each companies local market share, it would have expected the March events to have cost insurers $2 billion.
However, owing to reported losses during the month in relation to firms’ Texas market share, Credit Suisse highlights that losses could actually be significantly higher, possibly nearer the $3.5 billion mark.
With an expected insured industry loss of $2 billion from the March hailstorms in Texas, Credit Suisse explains that owing to Travelers’ Auto and Home Texas market share of 1.4%, and its 6.9% commercial lines Texas market share, total cat losses for the company from the events would be roughly $71 million.
But as revealed in Travelers Q1 results and as highlighted by Credit Suisse, the cat events actually cost the P&C insurer $163 million.
Given Travelers market share in Texas this represents an outsized catastrophe loss, suggesting that the overall insurance and reinsurance industry loss from the March hailstorms could be much higher.
Furthermore, Credit Suisse notes that Allstate’s “March cat loss pre-announcement also released today (21/04/2016) of $638mm, the TX hail cat event may be as large as $3.5b.”
Credit Suisse notes that elevated, estimated catastrophe losses for Travelers and Allstate during March suggests, “Q1 cats were likely much heavier than expected for the industry.”
As a result, “We are increasing our cat loss estimates for into Q1 for CB (CB Limited), HIG (Hartford Financial Services), and ALL (Allstate) to reflect higher Texas cats but our views for the quarter are otherwise unchanged for those companies,” said Credit Suisse.
Catastrophe losses in March for insurers and reinsurers with a presence in Texas were clearly higher than expected, and the commentary from Credit Suisse suggests the potential of underestimation meaning that losses could rise significantly.
And, unfortunately for players with exposures in Texas the second-quarter of 2016 is also likely to result in potentially higher than anticipated cat losses for some, as hailstorms continue to impact the region April.
Artemis reported that further hailstorm events in Texas during April could push insured losses from recent hail events in the region to as much as $3 billion, with the April 12th San Antonio area event set to become the largest hail insurance loss the state has ever seen.
Any further uptick in these losses, at a time of year when further severe storms are anticipated, could mean the amount of losses falling to the reinsurance and ILS market increases.
“For now we are modelling normalized 2Q cats though early indications are that 2Q industry cats could be high as well, especially for companies with high Texas market share.
“We would point to early April flooding and hail storms in the Houston (flooding), and Dallas and San Antonio (hail) areas,” said Credit Suisse.
Recent market commentary from Credit Suisse and other industry observers and analysts, suggests that catastrophe losses from hailstorms alone in the first six months of 2016 could be substantial.
The outsized catastrophe loss reported by Travelers underlines the importance of being financial prepared for unexpected cat losses, particularly with the global re/insurance market experiencing a lack of losses in recent times.