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Barclays: “Hurricane Irma’s Insured Damage Could Be The Largest Ever”

Courtesy of ZeroHedge. View original post here.

Hurricane Harvey was supposed to be a "1 in a 1000" year storm, in terms of damage. Well, just a few days later we have another "monster" storm to account for, and according to Barclays' analyst Jay Gelb, Hurricane Irma's insured damage in Florida could equal that inflicted by Hurricane Katrina in 2005. Actually scratch that – according to the just released note, Irma’s insured damage in Florida could be the largest ever in the US" with some estimating a repeat of the 1926 Miami hurricane which could result in $125-130bn of insured damage.

According to Barclays, "in a worst case scenario, catastrophe modelers AIR Worldwide and Karen Clark and Co. have estimated a repeat of the 1926 Miami hurricane could result in $125-130 billion of insured damage", which is substantially higher than the insured damage expected in Texas as much of the damaged property was not covered by flood insurance. This explains why insurer stocks are in freefall today as traders shift their attention from potential damage by Harvey to potential damage by Irma.

With winds topping 180 mps, Hurricane Irma has now been classified as the strongest Atlantic hurricane on record. And as Barclays writes, "this potentially devastating hurricane could directly impact southern Florida early next week. Given the potential magnitude of this storm as well as the potential to impact a highly populated area, we think Irma’s insured damage in Florida could be the largest ever in the US perhaps equivalent to Hurricane Katrina in 2005 ($50bn on an inflation-adjusted basis). In a worst case scenario, catastrophe modelers AIR Worldwide and Karen Clark and Co. have estimated a repeat of the 1926 Miami hurricane could result in $125-130bn of insured damage."

"We would view Irma as more of a risk to the traditional reinsurers as well as third-party providers of reinsurance capital than the primary commercial insurers and personal lines insurers based on the industry’s long-standing view that Florida poses substantial windstorm risk. Of the companies we cover, reinsurers expected to have among the largest exposures to a Florida hurricane could include RE, XL, VR, RNR, and AHL. Among primary commercial insurers, we would expect AIG to have among the largest exposure."

The reinsurance companies cited by Barclays have seen their stocks fall over 5% today, with Validus down the most at 6.5 percent. XL Group was the single worst performer in the S&P 500, down 6 percent

The good news is that Gelb believes the net exposure (including reinsurance protection) of commercial and personal lines insurers such as CB, TRV, HIG, and ALL should be comparatively limited. Companies with large personal and commercial auto exposure in Florida which could be storm-exposed include Berkshire Hathaway’s GEICO unit as well as PGR. Notably, Berkshire has largely exited the property catastrophe reinsurance market due to weak pricing.

He adds that the possibility also exists for mandatory assessments on insurers from the state’s Florida Hurricane Catastrophe Fund which would add to insurers’ costs, making the hit to equity even worse.

"From the insurance industry's perspective, we would expect a substantial hurricane possibly impacting Florida as well as just after Hurricane Harvey to possibly halt further reinsurance price declines for the first time in many years," concluded the Barclays analysts. "However, insurers' earnings and book values would also be expected to suffer a large hit."

And then, once Irma passes, there is Jose to worry about


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