Impact on reinsurance pricing from Hurricane Harvey is likely to be limited to the regions and policies directly affected by the storm as the heaviest losses are expected to be felt by property & casualty (re)insurers with a strong regional focus, according to S&P.
Experts had previously predicted that reinsurance pricing would decrease by flat to 5 percent into 2018, however, S&P analysts believe hurricane Harvey is likely to impact pricing within the devastated Texas area among (re)insurers with a high premium concentration.
Harvey is predicted to have a limited impact on the (re)insurance industry’s overall creditworthiness, with rating actions limited to a few outliers; “With the earnings of certain personal lines players already stretched, the hurricane-related losses could wipe out their earnings for the year.
“Consequently, we could consider taking negative rating actions on certain outliers, specifically those where we believe capital levels might decline beyond our base-case assumptions.”
S&P credit analyst Taoufik Gharib, said; “Primary insurers – as opposed to reinsurers – will bear the brunt of the covered losses from Hurricane Harvey.
“However, the effect on individual companies will vary. While the large, national primary players have sufficient geographic and product diversification to absorb the losses, some of the regional and local players could face significant hits to their earnings and possibly their capital.”
The National Flood Insurance Programme, which is already steeply indebted, is likely to be reviewed as its capacity is expected to be blown in the Harvey aftermath.
Reinsurance coverage that could be triggered includes the $1bn of protection to the NFIP and $2.1bn to TWIA, which attaches at $2.8bn; reinsurers would cover losses between $2.8bn and $4.9bn.
More detailed information on personal and commercial insurance losses will emerge in following weeks to unveil the full impact of Hurricane Harvey, however, based on early estimates, S&P echoes other analysts’ prediction that the catastrophe will likely be an earnings event rather than a capital event for broader and more diversified property/casualty (P/C) (re)insurers.