HIM losses start to rise: Jefferies

Loss estimates for the HIM Hurricanes (Harvey, Irma & Maria) are beginning to rise, according to investment firm Jefferies.

Hurricanes Harvey, Irma and Maria (HIM), together with two hurricanes in Mexico and the wildfires in California, are expected to have caused more than $100 billion in insured losses.

In December 2017, Jefferies had identified a gap of $20 billion between company losses and estimates of total insured losses from HIM, suggesting that some company estimates will rise in 2018, fuelling reinsurance price rises.

This trend is now underway, Jefferies said, with Catco Reinsurance and Blue Capital Alternative Income Fund both reporting increases for recent catastrophe losses.

Catco Reinsurance Opportunities Fund and Blue Capital Alternative Income Fund both reported upward revisions to their hurricane loss estimates on Jan. 19.

Catco's estimate for its 2017 hurricane losses rose 18 percent, adding 3.6 percent to the 20.0 percent of net asset value (NAV) reserved, for a total of 23.6 percent.

Blue Capital also reported an additional charge, equivalent to 1.01 percent of NAV, recognising additional risk margin to be held as a collateral buffer for 2017 losses.

In addition, Catco has increased its fourth quarter Californian wildfire loss reserve by 14.4 percent of the fund's NAV and another 1.8 percent for other attritional losses throughout 2017. Industry level wildfire losses have increased more than 75 percent from initial estimates so that the wildfires are now expected to cost $12.5 billion, four times larger than any cumulative annual wildfire loss in US history.

Jefferies expects rising company losses to reduce the gap with industry estimates. Given this material increase in the loss estimates for the listed alternative capital providers, analysts expect that a similar trend is likely to become evident at other alternative capital providers, as well as smaller reinsurers. Overall, the investment firm believes that this will begin to close the $20 billion gap between industry-level loss estimates and the bottom up total of reported carrier losses noted in December. This occurs after most major losses, with the initial Hurricane Katrina (2005) estimates rising by 20 percent, Sandy (2012) by 70 percent and Wilma (2005) by 68 percent. Thus far 2017 has been an anomalous year, with industry level loss estimates falling and with company estimates yet to rise.

One notable data point at odds with this increase in loss estimates is the Lloyd's of London market, which also reported on Friday during its investor day that claims were developing at a slower rate than normal, Jefferies noted. Though it appears to be a fairly minor variance to the norm, it is still surprising because this would suggest that there is a greater degree of conservatism in the Lloyd's estimates and that their loss could fall in 2018. If so, then this would widen the gap between industry and company loss estimates even further, the analysts noted.

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