Munich Re and Swiss Re face 'significant' impact from Harvey

Munich Re and Swiss Re may face the biggest losses from  Harvey among the companies covered by Bernstein analysts, according to an Aug. 30 report.

Hurricane Harvey developed into a Category 4 and made landfall near Rockport, Texas on Friday, Aug. 25. In addition to direct losses, the storm is causing heavy rainfall and storm surge-related losses along coastal Texas.

Bernstein analysts estimate the losses borne by the two reinsurers to reach between $180 million and $340 million each. Although significant, this should be absorbed by the nat cat budgets of the two companies, which Bernstein analysts estimate for the third quarter at around $440 million for Munich Re and $500 million for Swiss Re.

Overall, Bernstein’s base case scenario is that the total insured loss from Hurricane Harvey will be between $2 and $4 billion. This would be far below Katrina and Sandy which resulted in insured losses of $82 billion and $31 billion respectively.

Bernstein analysts expect the insured losses for the property damage and subsequent business interruption claims to be borne equally by the direct market and reinsurance market (c50- 60 percent). Whereas the majority of the personal lines flood losses will be borne by the National Flood Insurance Programme (NFIP), motor insurance claims will primarily come through the US domestic personal and commercial lines insurance market.

If the market loss was to increase by a further $2 billion or more, Hurricane Harvey would pose an earnings risk for the two reinsurers, the analysts noted. Both reinsurers, on the other hand, have very strong capital buffers, $27 billion and $12 billion for Munich Re and Swiss Re respectively so even under a worst case scenario, the event is unlikely to pose a material impact to the capital ratio.

In terms of Lloyd’s of London syndicates, Hiscox, Beazley and Lancashire write significant catastrophe exposed business, the analysts noted. However, both Hiscox and Beazley have significant reinsurance or have been placed via 3rd party; Bernstein estimates 60-80 percent in both insurers' cases. Lancashire tends to write high layers which are unlikely to be significantly impacted by this event. Bernstein analysts expect the event to be within budget for all three companies. Zurich has a 3.9 percent market share in commercial lines in Texas. Assuming total commercial lines losses of $2 billion would suggest an $80 million loss to Zurich. Zurich budgets for $200 million cat losses per quarter, so in Bernstein’s base case analysts would not expect Harvey to be material for earnings, capital or valuation.

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