According to S&P Global Ratings, global reinsurers will be significantly exposed to damage from Hurricane Ian in Florida, which could reach $40 billion. Despite this, analysts expect losses to remain within annual disaster budgets.
Hurricane Ian made landfall in the Fort Myers metropolitan area of southwest Florida on Sept. 28 as a Category 4 storm with winds up to 155 mph, nearly a category 5 storm.
The storm’s path across the state appears similar to that of Hurricane Charley, analysts noted, which made landfall in Punta Gorda in August 2004 and caused about $7 billion in insured losses at the time.
Because Ian’s footprint is much larger and the storm’s progress is much slower, wind damage will be more extensive and rain and storm surge damage will be more severe. Storm surge estimates were as high as 12 to 18 feet, compared to estimates of 6 to 8 feet for Hurricane Charley.
Early pre-landing estimates of insured losses from Hurricane Ian ranged from $15 billion to $40 billion. S&P Global Ratings currently expects insured losses to be closer to the top of this range.
Wind damage, storm surge and water damage caused by heavy rain will result in significant losses for residential and commercial property insurers and, to a lesser extent, auto insurers. According to the agency, insurers are well placed to absorb these losses.
Catastrophe risk modeling firm Karen Clark & Company expects Ian’s impact in the United States to result in a private insurance loss of around $63 billion, with the majority coming from from Florida.
The data and loss estimates from S&P Global Ratings used in their report “Insured Losses from Hurricane Ian Will Likely Be Substantial But Manageable” also relate only to Florida.
The report pointed out that the state insurance market has a unique feature, where much of the residential property exposure is underwritten by smaller local insurers that rely heavily on reinsurance.
Historically, the world’s top 21 reinsurers have had an average global catastrophe insured loss market share of around 20%, analysts at S&P Global Ratings said. The uniqueness of the Florida market makes it likely that the share of Ian’s insured losses borne by reinsurers and alternative capital will be higher than this average.
Additionally, Florida is considered a peak area for real estate catastrophe risk, and reinsurers have used alternative capital to manage their exposure. Therefore, the agency believes that alternative capital will bear some of these losses.
S&P Global Ratings said, “At this point, we believe the impact of Hurricane Ian, coupled with the catastrophic losses reported in the first six months of 2022, may still be within reinsurers’ catastrophe budgets.
“Even if the hurricane creates insured losses of nearly $40 billion, the industry would be well within its annual catastrophe budget. Combined profits ($22.5 billion) and catastrophe budget ($15.5 billion) create a reserve of $38 billion before disaster losses affect the capital of the sector.
However, fiscal disaster reserves are expected to be fully used or exceeded by the end of the year, analysts said.
They added: “The global reinsurance industry has a poor track record with respect to the profitability of its cost of capital (defined as the weighted average cost of capital). Reinsurers have failed to overcome this hurdle in the last five years (2017-2021) with the exception of 2019, and 2022 is expected to continue this trend. As a result, our view of the global reinsurance industry remains negative.
Additionally, S&P Global Ratings expects Ian’s losses for the United States. The property and casualty insurance and global reinsurance sectors will accelerate the firming of property and casualty insurance rates in 2023.
The agency concluded: “We will closely monitor the impact of losses and may take rating action if our baseline capital and earnings assumptions are not met. But at this point, we expect Hurricane Ian to be largely contained within annual natural disaster budgets.