As Hurricane Isaac starts to make landfall, Fitch Ratings says that the expected losses will likely be manageable for U.S. property and casualty insurers.
The rating agency says that it anticipates losses related to Isaac, which is hitting Louisiana on Wednesday, will be largely borne by primary insurers, but loss estimates remain uncertain.
The storm, which coincides with the seventh anniversary of Hurricane Katrina, is expected to be less powerful and less damaging than Katrina. Fitch says that forecasters at the National Hurricane Center anticipate severe flooding, with up to 12 feet of storm surge in southern Louisiana and Mississippi. However, it notes that new flood control systems that were built in the wake of Katrina are expected to limit the surge from Isaac in the New Orleans region.
“Catastrophe modeler AIR Worldwide reported an initial estimate of industry insured losses of $300 million to $7.5 billion, which would make up a modest 1% or less of U.S. industry statutory capital,” it says. “At the high end of the range, Isaac could be on par with 2004’s Hurricane Ivan ($8.1 billion), 1989’s Hurricane Hugo ($6.7 billion), or slightly more than half of the losses of Hurricane Ike ($12.7 billion). However, loss estimates remain highly uncertain.”
Fitch says it expects the brunt of losses to be borne by primary insurers, including State Farm, Allstate, Alfa Mutual (primarily concentrated in Alabama), and Liberty Mutual Group, based on market share positions in Louisiana, Mississippi, and Alabama. Market share was calculated based on direct written premiums and gives no consideration for reinsurance, it notes, adding that the likelihood of losses being allocated to the reinsurance industry increases if losses come in at the higher end of the range.