Hurricane Ida is expected to generate significant economic and insured losses in Louisiana, but is unlikely to trigger ratings downgrades of individual property/casualty insurers or reinsurers, Fitch Ratings says. While losses will take some time to reconcile, there are indications that this will be an earnings and not capital event for the industry.
Fitch-rated insurers with the largest property market share in Louisiana and the wider property/casualty sector have generally experienced capital expansion over the past 12 months, positioning the industry to absorb a significant catastrophe loss.
The storm’s intensity at landfall along the Louisiana coastline was notable as a Category 4 hurricane, among the strongest to ever hit the state and represented the second consecutive year in which a hurricane came ashore in the state at a Category 4 intensity following Hurricane Laura in 2020. Ida is the fourth hurricane in the past 12 months to make landfall at hurricane-level intensity in Louisiana.
Early estimates indicate a potential industry loss of $15 billion-$25 billion, well below the record $65 billion of insured losses from Hurricane Katrina in 2005, which had a much larger footprint than the more compact Ida. However, Ida is likely to surpass winter storm Uri ($15 billion) as the largest industry event in 2021 and Hurricane Laura ($10 billion), which was the costliest insured catastrophe event of 2020. Some of the strongest winds from the storm occurred near New Orleans, creating widespread power loss in the city and increasing the potential for elevated economic and insured losses.
The resurgence of the coronavirus in the summer of 2021 with outbreaks of the Delta variant present additional challenges to saving lives and managing efforts to protect property in the wake of the storm. The recent surge in hospitalized patients in hospitals across Louisiana, with the state health department reporting nearly 3,000 state-wide coronavirus hospitalizations on average in August compared to about 300 daily between April and June, presents additional pressure on local governments to protect facilities that cannot be readily evacuated.
The ongoing pandemic may compound the normal logistical challenges of assessing damage to property following a catastrophe event and lead to modestly elevated levels of loss adjustment expenses. The severity of insured property claims may face adverse impact from supply chain shortages of building materials and higher contract labor costs. Company-specific insured loss estimates remain uncertain, and information will be more forthcoming as 3Q21 financial results are announced.
Two companies that are in the top 10 of homeowners’ writers in Louisiana are subsidiaries of United Insurance Holdings, Ltd and FedNat Holding Company, which reported elevated combined ratios and capital declines in 1H21. Smaller and more thinly capitalized homeowners’ specialists are generally more reliant on ceding catastrophe losses to reinsurance partners to limit net retained losses and may be more vulnerable to a large industry event.
Ida will be a significant loss event for reinsurers given the estimated size of the loss at greater than $10 billion and the concentration of more regional primary insurers in the state that have generally have lower retentions. The storm could also trigger aggregate covers given the above average accumulation of insured losses thus far in 2021.