Reinsurance To Take More Of Michael's Losses Than Florence's: KBW

by: Steve Evans

The reinsurance market and, as a result, some collateralized providers of reinsurance capital may take a greater share of losses from hurricane Michael's Florida and beyond impacts than they did for last month's hurricane Florence, according to analysts.

Keefe, Bruyette & Woods (KBW) said that although the impacts of hurricane Michael continue to develop, "it seems clear to us that its insured losses won't be overly disruptive."

This aligns with commentary we wrote about earlier today that suggests Michael will not be a market-moving event for insurers or for reinsurers.

The analysts agreed with our assessment that early industry loss estimates, such as CoreLogic's of $2 billion up to $4.5 billion, would likely prove low, as hurricane Michael's impacts continue far inland.

While for insurers the analysts said, "we're confident that most primary insurers can readily absorb their net losses," for reinsurers the event is also expected to be easily dealt with from their 2018 catastrophe budgets (in the main).

However, KBW explains that due to the greater influence of wind and surge on losses from hurricane Michael, compared to hurricane Florence's flood related impacts in the Carolinas, saying, "We expect reinsurers to bear more of Michael's losses than Hurricane Florence's."

Even so, the impact is not expected to be too significant and KBW said that, "We strongly doubt that YTD industrywide catastrophe losses will disrupt orderly and modestly soft January reinsurance renewals."

Wind related losses are expected to dominate in all areas affected by hurricane Michael, but in the more inland states further along the storm's path, the contribution from auto losses will increase its share.

Overall, for the primary insurers though, KBW expects that "Hurricane Michael will constitute a very manageable earnings event rather than a capital event."

The final interesting point raised by KBW's analyst team is that Michael could perhaps have a bearing on next year's mid-year reinsurance renewals, given the Florida focus, although this is likely to be more to do with how companies handled the event than the losses, so company specific.

"There will likely be some June 1, 2019 pricing variation based on how well primary insurers have successfully controlled Irma and can control likely Michael AoB loss creep," KBW explained.

With last year's hurricane Irma still playing out as well, there could well be a case for some interesting renewal discussions with some Florida primary players come their next reinsurance renewals.

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