Latest Hurricane Salvo Tests Historical Loss Records

Hurricane Jeanne, which slammed into Florida’s east-coast the last weekend of September, made unfortunate history, capping off the first season in which Florida was hit by four major hurricanes.

The combined losses from Hurricane Charley in mid-August, and then Hurricanes Frances, Ivan and Jeanne in September, will make this easily the worst year for insurance storm losses in Florida’s history. All four storms may end up being among the “top ten” worst U.S. hurricanes for insurers. In fact, according to the Insurance Information Institute (III), this hurricane season’s insured loss will likely tally US$22 billion, making it the second largest hit to insurers in U.S. history – with the 9/11 terrorist attacks at the forefront.

At the time of this writing, losses from Hurricane Charley were pegged at US$6.8 billion by the Insurance Services Office (ISO), with insured losses from Frances pegged at US$4.4 billion. While the ISO did not yet have figures for Hurricane Ivan, risk modelers estimate its impact at about US$3-$6 billion, on top of US$1-$2 billion in losses in the Caribbean. Hurricane Jeanne brought in early estimates around the US$6 billion mark. With a total insured loss likely in excess of US$20 billion, this tops Hurricane Andrew which wrought US$15 billion in insured damage.

However, analysts say the 2004 storm season will not throw the property insurance industry into the turmoil seen after Andrew. While Andrew caused 11 insurers to close shop in Florida, rating agencies generally do not expect to see solvency issues arising this time. “Certainly, most companies’ earnings will be adversely affected by the storms, with anywhere from one quarter’s to one year’s earnings being absorbed by the losses,” says Standard & Poor’s (S&P) credit analyst Thomas Upton. “Companies’ longer-term financial strength could eventually be diminished by the consequences of the storms, necessitating changes in their assigned ratings, but S&P expects that these changes will be modest and will be exceptions rather than the rule.”

One reason for the moderate financial impact on insurers in terms of the latest round of hurricane losses is the creation of the “Florida Hurricane Catastrophe Fund” (FHCF), which after Andrew was brought in by the federal government to provide a reinsurance “backstop”.

But, the latest storms could prompt those insurers who have not already created “Florida only” subsidiaries to write property risk in the state, to consider doing so, notes S&P.

Several reinsurers have indicated that the storms will likely curtail any rate softening in the property catastrophe line.