Early estimated insured losses from the wind and storm surge caused by Hurricane Michael in the US are up to $4.5bn, says S&P Global Ratings.
Based on the early estimates, S&P predicts Hurricane Michael will be an earnings event rather than a capital event for both the US primary insurance and global reinsurance sectors.
Hurricane Michael made landfall in the Florida Panhandle as a major Category 4 storm on Wednesday, 10 October, with a potentially dangerous storm surge, strong and damaging maximum sustained winds of 155 miles per hour, and flooding rainfall.
According to the modeling agency CoreLogic, more than 57,000 homes on the Florida Gulf Coast—with a reconstruction cost value of about $13.4bn—were at risk of damage from the storm surge. Hurricane Michael quickly strengthened into a fast moving storm that caused coastal and inland losses.
Per the Swiss Re Sigma report, global insured catastrophe losses totaled about $20bn in the first half of 2018, down from $30bn during the same period in 2017. However, the third quarter of 2018 incurred many man-made and natural catastrophes that S&P predicts will hurt re/insurers' operating earnings.
“We believe the third quarter will be difficult for re/insurers because we've already seen some of these companies pre-announce their preliminary third quarter catastrophe estimates (e.g., Lancashire Holdings, Chubb). We expect that the combined earnings for the US insurance and the global reinsurance sectors will absorb the total year-to-date catastrophe losses, including those from Hurricane Michael,” the international rating agency said.
S&P expects reinsurers to be exposed to losses from Hurricane Michael because Florida's insurance market is heavily reinsured and the storm could trigger reinsurance aggregate limits.
Unfazed reinsurance pricing
S&P says that it's too early to quantify the January 2019 reinsurance pricing renewals, but if 2017 is any indication, year-to-date catastrophes will not likely change the fizzling of the reinsurance pricing momentum the industry saw earlier this year. However, Hurricane Michael may provide some support for rate increases demanded by primary insurers.
Hurricane Irma, which struck the US in September 2017, caused just over $10.4bn in insured losses in Florida, according to the Florida Office of Insurance Regulation. The difference with Hurricane Michael is that the properties hit by the latter had lower values.