State Farm, Allstate and Farmers lead list of potential Harvey losses

Primary insurers will face the largest effect from Harvey, with regionally focused carriers most vulnerable given their geographic concentrations, Moody’s said in an Aug. 28 research note.

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.

The Southeast is a peak catastrophe zone in the US for reinsurers, and those with exposure to Texas are at risk of incurring meaningful losses, although we expect those losses to be manageable relative to earnings.

Moody’s has listed the primary insurers likely to be affected by Harvey, based on their market share in Texas. On top of the list is State Farm Mutual Automobile Insurance Company, The Allstate Corporation and Farmers Exchange Capital. They all have high homeowners market shares in Texas, according to the rating agency.

CNA Financial Corporation, Liberty Mutual Group and American International Group (AIG), lead the commercial property market. Moody’s expects that these large national carriers will have the capacity to withstand a significant event based on careful monitoring of their coastal exposure, geographic diversification, high quality reinsurance protection and strong capital bases owing to a decade free of severe catastrophes.

As Harvey weakens to a slow-moving storm, the middle and upper Texas coast could receive two to three feet of rain or more in certain areas. Parts of the southeast greater Houston metropolitan region (6.5 million population) received more than 20 inches of rainfall by early Sunday (Aug. 27) morning. Isolated tornados have also been reported. Moody’s expects that a significant share of insured losses will derive from wind and rain for areas that were not directly hit by the hurricane.

Significant losses along the Texas coast will be absorbed by the Texas Windstorm Insurance Association (TWIA), the insurer of last resort. In total, TWIA provided about $67.6 billion of coverage as of June 30, 2017. TWIA’s total payment capacity is about $4.9 billion, which TWIA estimates will cover more than a 1-in-100- year hurricane. If TWIA’s total losses were to exceed its payment capacity, it would have the option to charge assessments or surcharges on TWIA policyholders.

Forecasters expect Harvey to stall over the area, causing torrential rain and widespread, severe flooding. There will be significant economic losses, but flood damage is typically not covered by homeowners’ policies. This often becomes a point of dispute when the immediate cause of loss (wind versus flood) is unclear. Commercial lines insurers could face losses from flooding, which is typically an optional commercial coverage. Business interruption losses could also be significant, especially if there are extended power outages.

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