Fitch Ratings reported that based on its initial assessments, most U.S. insurance companies and global reinsurers that it rates are not expected to be downgraded as a result of the combined effects of Hurricanes Irma and Harvey.
However, Fitch said it does not yet dismiss the risk that select insurers and reinsurers “with disproportionate combined exposures” could ultimately report losses at levels that could strain capital and pressure ratings.
Fitch also notes that risks remain from other hurricanes or large near-term catastrophic losses in 2017.
Third-party model estimates from AIR Worldwide currently peg insured losses from Hurricane Irma between $20 billion-$40 billion in Florida, with an additional $5 billion-$15 billion in the Caribbean.
Insured loss estimates from Hurricane Harvey are varied and range from $10 billion from AIR Worldwide and up to $30 billion from RMS, exclusive of losses attributed to the National Flood Insurance Program.
In total, the combined high end of estimated losses from both Hurricanes Irma and Harvey is $85 billion. Fitch said it believes if losses ultimately reach this level, or higher, “there may be select (re)insurers with concentrations across each locale that, added together, could adversely affect capital.” However, the ratings agency said it believes such cases will not become evident until the carriers provide their own specific loss experience.
Fitch believes most rated insurers and reinsurers will be able to withstand combined losses from Hurricanes Irma and Harvey. Still, another large loss occurrence within a short period could lead to more substantial changes in capital causing more broadly negative rating actions for (re)insurers. With roughly two months left in the Atlantic hurricane season the potential for additional storm losses on top of those incurred from Hurricanes Irma and Harvey remains a concern.
Overall industry insured loss estimates remain preliminary and subject to change. Fitch said it will be reviewing company-provided loss estimates relative to its initial expectations as estimates become available in the coming days and weeks. If a company’s loss estimates materially exceeds its expectations or ratings sensitivities, Fitch will review the size of the loss relative to capital and earnings and qualitatively assess whether the over-sized loss indicates some weakness in risk management.
Fitch noted that its ratings coverage does not include the group of smaller Florida specialist insurers with approximately 60 percent market share in Florida homeowners’ insurance. These companies will report substantial gross insured losses from Irma, but will cede most losses to reinsurers, according to Fitch. “Hurricane Irma will be the first notable test of these groups’ underwriting policies, claims handling capabilities, reinsurance programs, capital strength and overall risk management,” the rating agency said.