October 2, 2017 by Greg Meckbach
With Hurricanes Maria, Irma and Harvey causing devastation in Puerto Rico, Florida and Texas respectively over the course of three weeks, catastrophe losses in 2017 “will constitute a capital event” for some insurance and reinsurance carriers, Fitch Ratings Inc. has warned.
Ten days after Hurricane Irma made two separate landfalls in Florida, Hurricane Maria made landfall Sept. 20 in Puerto Rico. The Associated Press reported earlier that Hurricane Maria caused at least 50 cm of rain in some places in Puerto Rico, while Verisk Analytics Inc.’s AIR Worldwide unit reported earlier that a storm surge of six to nine feet was another effect in Puerto Rico.
“Given the magnitude of the Maria-estimated losses, we now believe that 2017 catastrophe losses will constitute a capital event for a number of (re)insurance companies, as opposed to just an earnings event,” Fitch said Sept. 26. “However, the industry’s very strong capital levels going into this year greatly limit any risks to solvency.”
Catastrophe losses for the global insurance and reinsurance sectors “will exceed” US$100 billion “and could reach close to” US$190 billion on a pre-tax basis, Fitch Ratings said Sept. 26 in a release.
On Sept. 12, Fitch said the combined high end of estimated losses from both Hurricanes Irma and Harvey is US$85 billion.
Hurricane Harvey made landfall Aug. 25 as a Category 4 storm, with winds of 215 km/h, near Rockport, Texas, Aon plc’s Impact Forecasting unit reported earlier. Harvey caused major floods in Houston. Insured losses were likely to exceed US$10 billion, Impact Forecasting estimated earlier.
Hurricane Irma’s effects included severe flooding in Miami and Jacksonville while Hurricane Harvey’s effects included severe flooding in Houston.
Two days before Hurricane Maria made landfall on Puerto Rico, A.M. Best Company Inc. warned that the storm “could severely test the financial strength of some of the insurers with concentrations of property risk in the Caribbean.”
Fitch Ratings analysts “believe there is heightened risk that combined loss concentrations to these events for several (re)insurers will result in a capital decline for full-year 2017,” the ratings firm said Sept. 26. “In some cases, this could result in ratings downgrades if not addressed through capital raises or other mitigating actions.”
In a 2016 report – Natural Catastrophes and Man-made Disasters in 2015 – Swiss Re noted that 2015 was the 10th year in row that no major hurricane made U.S. landfall, the longest stretch since the 1860s. In that paper, Swiss Re reported that 14 North Atlantic hurricanes made the list of top 40 most expensive insurance losses from 1970 through 2015.
Hurricane Katrina ranked first with nearly US$80 billion in insured losses. Katrina hit New Orleans in 2005 and those losses were adjusted for inflation to 2015 dollars.
Sandy, Andrew and Ike – which hit the region in 2012, 1992 and 2008 respectively – had insured losses of $36.1 billion, $27 billion and $22.3 billion respectively, also adjusted to inflation to 2015.
Other North Atlantic hurricanes on the Swiss Re’s top 40 list, as of the end of 2015, included Wilma (2005), Rita (2005), Charley (2004), Hugo (1989), Frances (2004), Irene (2011), Georges (1998), Jeanne (2004), Floyd (1999) and Opal (1995).