Hurricane Irma’s insured damage could match Katrina, halt P&C rate declines

Irma’s insured damage in Florida could be the largest ever in the US, perhaps equivalent to Hurricane Katrina in 2005 which recorded $50 billion on an inflation-adjusted basis, Barclays analyst Jay Gelb said in a Sept. 5 equity research analyst note.

Hurricane Irma has strengthened to a category 5 storm with maximum wind speed of 175 mph. This potentially devastating hurricane could directly impact southern Florida early next week. The chance of direct impacts from Irma from wind, storm surge, and rainfall continues to increase in the Florida Keys and portions of the Florida Peninsula, the US National Hurricane Center said on Sept. 6.

In a worst case scenario, catastrophe modellers AIR Worldwide and Karen Clark and Co. have estimated a repeat of the 1926 Miami hurricane could result in $125-130 billion of insured damage.

From the insurance industry’s perspective, Gelb would expect a substantial hurricane possibly impacting Florida as well as just after Hurricane Harvey to possibly halt further reinsurance price declines for the first time in many years. Primary commercial property/casualty (P&C) pricing might also stabilize for a limited time. However, insurers’ earnings and book values would also be expected to suffer a large hit.

Gelb views Irma as more of a risk to the traditional reinsurers as well as third-party providers of reinsurance capital than the primary commercial insurers and personal lines insurers based on the industry’s long-standing view that Florida poses substantial windstorm risk.

Of the companies Barclays covers, reinsurers expected to have among the largest exposures to a Florida hurricane could include Everest Group, XL Group, Validus Holdings, RenaissanceRe Holdings, and Aspen. Among primary commercial insurers, Gelb would expect AIG to be among those most exposed.

Barclays analysts believe the net exposure (including reinsurance protection) of commercial and personal lines insurers such as Chubb and Travelers should be comparatively limited. Companies with large personal and commercial auto exposure in Florida which we would expect to be storm-exposed include Berkshire Hathaway’s GEICO unit as well as Progressive Corporation. Notably, Berkshire has largely exited the P/C reinsurance market due to weak pricing. The possibility also exists for mandatory assessments on insurers from the state’s Florida Hurricane Catastrophe Fund which would add to insurers’ costs.

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