Loss estimates rise as Hurricane Ian makes a second landfall

Posted 01/10/2022 – News

Hurricane Ian, having crossed the Florida peninsula and weakened to a tropical cyclone, re-strengthened over the Atlantic to a category 1 hurricane and made a second landfall near Georgetown, South Carolina, at approximately 2pm local time on Friday 30th September.

Maximum sustained winds at landfall were 85 mph. Hurricane conditions and storm surges impacted coastal areas of the Carolinas, with tropical storm conditions and heavy rainfall extending well away from the centre of the hurricane (into Georgia and Virginia) given the large footprint of the storm. The storm has weakened once again and is forecast by the US National Oceanic & Atmospheric Administration to move into the Appalachians and dissipate. At least 21 people have been killed in Florida – a higher figure than for Hurricane Andrew in 1992 which claimed 15 lives. A state of emergency has been declared in both Florida and South Carolina, allowing both states to access Federal funds and disaster support.

As a result of the second landfall and the combination of wind, storm surge and inland flooding impacting Florida and the Carolinas, modelling agencies have been increasing their loss estimates for Ian. At this stage of any storm, estimating losses is a very imprecise science and instead upon data from comparable storms in history. Karen Clark & Company, for instance, has increased its estimate for privately insured losses from cUS$32.5bn before landfall in Florida to cUS$63bn after the second landfall. CoreLogic estimates that insured and uninsured losses may be up to US$47bn in Florida alone (US$22-32bn as a result of wind and flood damage to residential and commercial properties and US$6-15bn from storm-surge damage). ICEYE, the satellite imagery firm, reported that c84,000 properties in coastal southwest Florida were affected by storm surge and flooding. The Financial Times reports that S&P Global Ratings estimates the insured losses would be closer to the higher end of its US$30-40bn range, adding that losses for global reinsurance groups should remain within their catastrophe budgets. Fitch, the rating agency, has said that the storm is unlikely to impact the credit rating of reinsurers (i.e. this should be an earnings, not a capital, event for reinsurers).

Alpha comment

It is now clear that Hurricane Ian will be a very costly storm for the Floridian insurance industry – possibly the most costly ever to hit the state (adjusted for inflation, the cost of Hurricane Andrew would be cUS$55.7bn) – which was already suffering from capital and reserving issues. Industry experts have predicted that many properties will, very sadly, be uninsured. Others will rely upon the National Flood Insurance Program, managed by the Federal Emergency Management Agency, estimated to cover cUS$10bn of losses. Florida hurricane risk is the largest segment of the global catastrophe bond market, so it is likely that those capital providers will be negatively impacted.

Although it is far too early to tell what the eventual insured losses from Hurricane Ian will be (analysis at this stage generally relies upon high-resolution satellite imaging and storm-surge computer modelling) we continue to be hopeful, in-line with the comments from S&P Global Ratings, that this will fall within most reinsurers’ catastrophe budgets. Even if this is the case, however, the reinsurance industry will need a quiet end to the year if overall target loss ratios are to be achieved. Hurricane Ian is also likely to ensure that positive rate momentum continues for Property classes, particularly Treaty.

We will, of course, provide further updates once more information is available.

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