Skip navigation Scroll to top
Scroll to top

Across the Atlantic – how will Harvey and Irma affect London’s insurance market?

21 September 2017

Andrew Palmer - Partner, Investment Manager

“It is the Night of the Long Knives. Those who emerge from it at the end of September will be worthy of it” – CEO of Sompo International, John Charman, quoted from Insurance Insider[1].

Given recent events, for clients who have exposure directly or indirectly to the insurance losses that will occur from the fall out of hurricanes Harvey and Irma, it is currently very obvious that no one has any idea about the quantum of claims that are likely to arise. Much uncertainty exists.

The losses from Harvey are forecasted to be flood related and predominantly occupying the primary market. The areas with the highest impact are expected to be threefold: the auto sector, property sector and commercial sector. Auto – as a result of waterlogged and damaged car claims; property – due to the devastation of countless properties; and, commercial – businesses unable to continue operating. In contrast, Irma looks like being more relevant in the home owners market after the storm surges and wind damage and auto exposure is expected to be less with Irma.

In relative terms, the losses from Irma are expected to surpass the $48+ billion loss from Katrina. The Insurance Insider has quoted Harvey as a loss of $25-$30 billion, making it larger than Sandy. Harvey is not expected to significantly alter both reinsurance and insurance pricing, whilst most commentators would expect Irma to halt declines rather than necessarily increase pricing. Obviously much depends on the eventual level of claims.

Currently, modeling agencies have been careful to put out numbers and markets are always cautious in the agencies abilities to actually calculate losses as previous estimates have been inaccurate.

For insurance companies with strong capital positions, we could see a number of alternative scenarios. These may vary from offers of cover at penal rates to firms simply looking to assist core clients in a time of need. It will be interesting to see how events unfold for the weaker firms within the market.

In terms of the impact on London, Lloyds will be expected to take a loss. Recent years have seen coastal exposure increase and general US catastrophe exposure is a core part of the market. Against this is the fact that recent loss ratios have been hovering around 100% without a major catastrophe. It will be interesting to see if more recent capital providers are scared off or simply reload for another season. The outcome of the next few months will determine if some new providers of capital do stay in for the long-term or simply withdraw and allow an increase in insurance rates to be more sustainable.

[1] Source: Insurance Insider, Page 3, 10 September issue