Hurricane Laura adds further upward pressure to renewal talks

Losses from Hurricane Laura will add to a Q3 catastrophe bill that already totalled several billion dollars. From a (re)insurance perspective, the storm will ultimately be remembered as the latest of many that could have had a far more severe outcome had small shifts occurred in its track.

Laura was the joint strongest landfall on record in Louisiana, with winds of 150mph and a projected storm surge that would stretch 40 miles inland. The worst of both the wind and the storm surge fell on largely uninhabited areas. The city most directly in Laura’s path, Lake Charles, saw some severe wind damage but not the expected storm surge impacts.

And while Laura retained hurricane strength for several hours as it moved inland, preliminary modelled estimates suggest a loss that is manageable for the (re)insurance sector. Taking the mid-point of the industry loss estimates to date points to an industry loss from the storm of $8.2bn.

That figure masks significant disparities between the estimates, with AIR Worldwide estimating an industry loss of $4bn to $8bn, Karen Clark & Company estimating the US component of the industry loss bill at $8.7bn and CoreLogic higher at $8bn to $12bn.

RMS has yet to publish an estimate at the time of writing. As with all industry loss estimates, these ranges are subject to uncertainty.

In its estimate, KCC explicitly stated the figure does not include any potential impacts from Covid-19. The extent to which the pandemic will amplify the cost of claims is difficult to assess, although some commentators have suggested it could add 20 percent or more to the bill from hurricane losses in 2020.

Assuming an industry loss of around $8-10bn, in line with the estimates to date and allowing for some potential creep due to adjusting challenges or a higher cost of materials, insurers will likely pick up a more significant portion of Laura’s losses than reinsurers. However, the Louisiana market does include several regional homeowners’ carriers as well as residual insurer LA Citizens and farm bureaus, all of which typically have low attaching cat programs.

This means reinsurers may take a potentially greater relative hit than if Laura had struck another state. Louisiana’s ten largest homeowners’ carriers include the likes of Louisiana Farm Bureau Mutual, United Insurance Holdings, FedNat Insurance Group, Lighthouse Insurance Group and GeoVera US Insurance Group alongside larger national carriers.

Several of these have low first event retentions on their cat programmes. Louisiana Citizens, the state’s residual insurer, has a $560mn cover attaching at just $35mn, including traditional and cat bond limit. Several carriers also have aggregate covers which could come into play as Laura looks set to be the biggest loss of a series of attritional to mid-sized hits from US cat events in 2020.

Depending on where the cost of Laura ultimately sits in the range of estimates published to date, the storm will likely become the costliest of those impacting the US so far in a busy third quarter.

Hurricane Isaias has been estimated at between $3bn and $5bn, while the 10 August derecho, which impacted several Midwest states, is also expected to generate an insured loss bill totalling billions of dollars. The derecho added to an already substantial bill for US convective storms in 2020.

In the first half of the year, both Munich Re and Swiss Re estimate US severe weather losses of approximately $21bn – the highest half-year total since 2011.

Outside the US, the first half of the year was relatively benign for natural and man-made catastrophe events, albeit one with several events causing losses in excess of $1bn, including hail and storm activity in Australia, Winter Storm Ciara/Sabine in Europe and civil unrest in the US. But against the backdrop of Covid-19, any additional loss activity will now further fuel upward rating pressure at forthcoming renewals.

And the hurricane season still has three months to run – six of the 10 costliest hurricanes on record have occurred in the months of September or October. The most significant of this year’s hurricane activity may be yet to come.