Insured losses from Maria could top $40 billion

October 04, 2017

Keywords: Capital Management

Mother Nature has dealt much of the South with a bad hand more than halfway through the Atlantic hurricane season, as three Category 5 storms - though downgraded slightly before reaching land - have struck business owners and residents in Texas, Florida and several other states in the Southern Atlantic.

But it's Hurricane Maria that the U.S. territory of Puerto Rico is currently convalescing from, and the abundance of claims sure to be filed will hit insurers hard, new data suggests.

Hurricane Maria - the 13th named storm of the year, which reached a peak wind capacity of 155 miles per hour, according to the National Weather Center - is expected to cost insurers between $40 billion and $85 billion, recent analysis from AIR Worldwide confirmed. The Caribbean in general and Puerto Rico in particularly has been blasted with tropical storm activity with Hurricanes Harvey, Irma and Maria being the latest round. The whipping winds has left much of the island in tatters and knocked electricity out for just about everyone. The longer the outage lasts, the larger the claim list will likely grow, said Keith Buckley, an analyst for Fitch Ratings, speaking with Reuters.

Even though Puerto Rico is surrounded by water, making it highly at risk for a direct hit from a tropical storm, the U.S. territory has escaped much of the fury in previous years. Indeed, as noted by AIR Worldwide, Maria was the first Category 4 storm to make landfall since 1932. The economic and financial toll of the weathermaker is only just now coming to light, both for the island and the insurers providing coverage.

14 to 19 named storms predicted
The active period for hurricanes doesn't come as too much of a surprise for weather watchers, particularly the National Oceanic and Atmospheric Administration. In May - just prior to the beginning of the hurricane season, which officially ends Nov. 30 - the NOAA predicted an above-average year for tropical storm development, predicting between 11 and 17 named storms. By August, however, the NOAA altered its assessment, forecasting between 14 and 19 named storms, with as many as five being major, meaning at least Category 3 intensity. As of Oct. 4, the storms that have taken shape falls squarely within NOAA's predicted range.

As noted by the Wall Street Journal, the losses insurers have experienced are widespread, impacting both primary insurers as well as reinsurers. Various estimates indicate claims will be in the billions, when combining Hurricanes Harvey, Irma and Maria. However, Harvey all alone was historic in terms of devastation, especially from a standpoint of flooding.

"Given Hurricane Harvey's unprecedented precipitation, the ongoing flooding will likely exacerbate the magnitude of the insured losses, which will be mostly covered by the National Flood Insurance Program (NFIP)," wrote Taoufik Gharib, Hardeep Mankum, Brian Spadaccino and John Iten of S&P Global in August. "In addition, we expect the Texas Windstorm Insurance Association (TWIA) to be materially affected."

Good and bad news for investors
What does all this mean for investors? It's a mixed bag, according to The Wall Street Journal. On the one hand, the claim onslaught will like reduce or stymie share buybacks and dividends for the remainder of the year. However, if share prices rise in the aftermath when the processing and payout period concludes, future profits could get a pick-me-up, an about-face from the weak equity returns that have been the norm for the past several years.

Insurers' financial situations - like hurricanes - are unique. This is something we at Miles Capital well understand and as such, offer customized capital management and portfolio strategies, including fixed income, equity and alternative markets.

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