Modeled insured loss estimates following Hurricane Sandy remain “highly uncertain” with the possible impact on insurance and reinsurance balance sheets yet to be revealed, according to a report issued Thursday by the rating agency Fitch.
In the report Fitch laid out the broad range of possible loss scenarios — from Sandy’s initial $10 billion estimate to Hurricane Katrina level $40 billion loss — but added that any loss within that range would still not impact industry capital or “tip” pricing into a hard market.
“The industry maintains a strong surplus position that reached a high of $562 billion at year-end 2011, and catastrophe events of even above-average size, such as Sandy, will deeply offset earnings in the first nine months of 2012, but the industry’s surplus position and operating leverage is not expected to materially change at year-end 2012 from 2011,” the report states. “Based on Fitch’s analysis, Hurricane Sandy is not likely to change market underwriting capacity and tip the balance to a hard property market, but is more likely to promote continuation of favorable pricing trends in 2013, particularly in U.S. property markets.
The ratings agency said that using the wide range of insured loss estimates, a $10 billion insured loss would translate into a $1.4 billion net loss for the property casualty industry while pushing the industry’s combined ratio to 102.9 percent. An upper range $40 billion insured loss would translate into a industry-wide $4.6 billion net loss and push the average combined ratio to 107.3 percent.
“Even at the extreme $40 billion scenario, Fitch does not anticipate material rating changes for most individual U.S. property/casualty insurers, the report states, adding that insurers with the largest potential insured losses from Hurricane Sandy include State Farm, Allstate, Travelers, Liberty Mutual and Chubb.
However, Fitch argues that the modeled losses published since the storm are unlikely to accurately reflect the industry’s ultimate Hurricane Sandy price tag form some time to come.
“The paramount issue to those in the industry who will be utilizing modeled catastrophe loss estimates in their decision making process is whether or not the catastrophe loss estimates for Sandy have sufficiently incorporated all of the potential insured losses an insurer may face,” the report says. “The level of ultimate losses for both flood and business interruption, which currently remain in flux, make the task of accurately modeling the overall insured and uninsured losses considerably more challenging.”
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