OLDWICK, N.J.--(BUSINESS WIRE)--AM Best expects losses from Hurricane Laura to stress its rated insurance companies’ balance sheets, which already have been weakened by the COVID-19 pandemic.
In a new Best’s Commentary, “Hurricane Laura Losses Could Further Stress Insurers’ 2020 Earnings,” AM Best states that reinsurance may help mitigate losses, but will challenge future risk management strategies, as loss-affected areas will see increases in reinsurance rates that are already hardening. Although the capital position of smaller companies may be at greater risk, prudent enterprise risk management strategies could result in losses that affect earnings more than capital. AM Best notes that many rated insurers have purchased first-event cover well-above the estimated loss associated with a 1-in-100-year hurricane, and programs often include drop-down and reinstatement features that insulate a company from a second event.
Hurricane Laura’s expected landfall, currently on the Louisiana-Texas border, is similar to that of Hurricane Rita in 2005. Consequently, losses from the hurricane may be contained somewhat if Houston, the most flood-prone city in the United States, is spared a torrential rain event. Still, the storm surge could reach 13 feet and push 30 miles inland or more along Louisiana’s southwestern coast. State Farm has the largest market share in Louisiana for the four lines of business that likely would be affected (i.e., commercial multiperil [non-liability]; fire and allied lines; homeowners/farmowners; and auto physical damage) at more than 22% combined, while 10 companies account for almost 60% of the state’s market. However, very few companies have significant exposures to these four lines relative to their total direct premiums written.
COVID-19 likely will exacerbate inherent price inflation for construction supplies and contractors following hurricane events, as adjusting claims, transporting goods and sourcing labor may be even more costly than usual. Technology may be a mitigating factor in this case, as the use of drone may help insurers assess losses and estimate replacement costs.
To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=300573.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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