Insights

Hurricane Ida

Posted 31.08.2021 – Quick takes

Hurricane Ida made landfall in Louisiana on Sunday morning, as a category 4 storm and one of the most powerful storms ever to hit the US. The storm caused widespread damage to properties and infrastructure in Louisiana and Mississippi as well as the death of at least two people. One million people in Louisiana currently have no electricity following damage to power infrastructure, with a large number of them in Baton Rouge and New Orleans, the State’s two most populous cities. It is likely that it may take weeks to restore power to all affected areas.

Current modelled estimates of the insurance loss are reported to be around $17bn, but there is a great deal of uncertainty in this early estimate and it is possible the final claim could be greater than $20bn. One of the main factors causing uncertainty at this time is how long it will be before power is restored, particularly in New Orleans, where a large number of business interruption claims are likely to arise. There is also uncertainty over the cost of repairing damaged structures, since the price of materials will be further inflated once there is a surge in demand to repair buildings. COVID-19 is likely to exacerbate this problem, as Louisiana is currently in its worst stage of the pandemic to date, which will further disrupt the supply of materials and repair of buildings.

Alpha comment

There is no doubt that Hurricane Ida has devastated Louisiana and it will take many months, if not years, for the damage to be repaired. From a (re)insurance perspective, putting this storm into context, Hurricane Laura which formed in August last year and was the strongest hurricane to make landfall in Louisiana since 1856, is estimated to have caused $11bn of damage, with models at the time suggesting approximately $10bn.

Hurricane Katrina in 2005 also took a path through Louisiana killing nearly two thousand people and causing over $65bn of insured damage, making it the costliest natural disaster in history. Much of the Katrina damage and loss of life was caused by flooding following the failure of the levee system protecting New Orleans, which has since been revamped and, to date, has not failed despite significant storm surge. Ida will undoubtedly be a material event of 2021, but at this early stage it is unclear what the insured cost will be. The information we have to date suggests that it looks to be an earnings event rather than a capital event for the reinsurance market.

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