Hurricane Ida could 'most adversely' impact earnings of two big carriers

Hurricane Ida is expected to largely be an earnings event, not a capital event despite the uncertainty on ultimate losses, according to early industry estimates.

Ida's intensity at landfall along the Louisiana coastline was notable as a Category 4 hurricane, among the strongest to ever hit the state and represented the second consecutive year in which a hurricane came ashore in the state at a Category 4 intensity following Hurricane Laura in 2020. Ida is the fourth storm in the past 12 months to make landfall at hurricane-level intensity in Louisiana.

The storm is expected to generate significant economic and insured losses in Louisiana, however, according to analysts as Fitch Ratings, it is unlikely to trigger ratings downgrades of individual property/casualty insurers or reinsurers.

While actual losses will take some time to reconcile, there are indications that Ida could be a c.$20 billion event, making it one of the top 10 costliest hurricanes on record for re/insurers.

According to UBS Research, among the global reinsurance and London Market players Swiss Re and Lancashire's EPS (earnings per share) would likely be "most adversely impacted" - 32 percent and 30 percent respectively, while Hannover Re and Munich Re the least.

It noted that 2021 is set to be the fifth year in a row that reinsurers exceed catastrophe budgets, intensifying the debate that Climate Change has not been appropriately priced.

"The event strengthens our view that capital strength and flexibility is key among the sub-sector, particularly as we are now in the more active period of the hurricane season," said UBS, adding that "we have increased confidence there will not be a share buyback announced at Scor’s CMD next week".

Meanwhile, analysts at Fitch Ratings are of the view that Ida will be a "significant loss event for reinsurers given the estimated size of the loss at greater than $10 billion and the concentration of more regional primary insurers in the state that generally have lower retentions."

"The storm could also trigger aggregate covers given the above average accumulation of insured losses thus far in 2021," it warned.

Fitch noted that insurers with the largest property market share in Louisiana and the wider property/casualty sector have generally experienced capital expansion over the past 12 months, positioning the industry to absorb a significant catastrophe loss.

Two companies that are in the top 10 of homeowners’ writers in Louisiana are subsidiaries of United Insurance Holdings and FedNat Holding Company, which reported elevated combined ratios and capital declines in 1H21. According to the agency, smaller and more thinly capitalised homeowners’ specialists are generally more reliant on ceding catastrophe losses to reinsurance partners to limit net retained losses and may be more vulnerable to a large industry event.

Early estimates indicate a potential industry loss of $15 billion - $25 billion, well below the record $65 billion of insured losses from Hurricane Katrina in 2005, which had a much larger footprint than the more compact Ida.

However, Ida is likely to surpass winter storm Uri ($15 billion) as the largest industry event in 2021 and Hurricane Laura ($10 billion), which was the costliest insured catastrophe event of 2020. Some of the strongest winds from the storm occurred near New Orleans, creating widespread power loss in the city and increasing the potential for elevated economic and insured losses.

Fitch also highlighted that the resurgence of COVID-19 in the summer of 2021 with outbreaks of the Delta variant present additional challenges to saving lives and managing efforts to protect property in the wake of the storm.

"The ongoing pandemic may compound the normal logistical challenges of assessing damage to property following a catastrophe event and lead to modestly elevated levels of loss adjustment expenses. The severity of insured property claims may face adverse impact from supply chain shortages of building materials and higher contract labor costs," it said.

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