A number of the major property and casualty insurers that are seen as most exposed to hurricane Laura’s impacts on the Gulf Coast region could tap into their reinsurance programs, should the major hurricane prove particularly impactful.
Analysts from Morgan Stanley explained that Allstate (NYSE:ALL), Travelers (NYSE:TRV), Progressive (NYSE:PGR) and The Hartford (NYSE:HIG) are all insurers that should be watched closely, given they have a relatively high concentration of exposure in the region where hurricane Laura made landfall earlier today with 150 mph Category 4 winds.
Allstate has a total property insurance market share of ~11.3% in Texas and Louisiana combined, the analysts explained, adding that this adds up to ~5% of the carrier’s annual premiums.
Allstate is estimated to have suffered roughly $864 million of losses from 2005’s hurricane Rita, which is perhaps the closest analogue to Laura, and $966 million for hurricane Ike, which was more of a Texas storm.
Allstate has a robust reinsurance program of both per-occurrence and aggregate towers.
The insurer’s per-occurrence catastrophe reinsurance attaches above $500 million of losses, so based on the above loss estimates for previous storms, this seems highly likely to get tapped into.
Allstate’s catastrophe aggregate meanwhile has a high retention, but the analysts point out the company has already eaten roughly $1.3 billion through the retention beneath it.
At this stage though it seems more likely Allstate could eat into its per-occurrence reinsurance layers, some of which may be backed by collateralized underwriters such as ILS funds.
Travelers meanwhile has combined Texas and Louisiana market shares in homeowners and commercial property of ~4.0% and ~7.2%, respectively, the Morgan Stanley analyst team said.
While the carrier’s total property premiums of $657 million in the two states represent around ~2.3% of Travelers’ annual premiums.
Travelers though is already very close to triggering its aggregate reinsurance, with roughly $1.4 billion of property losses so far standing just $155 million below the $500 million layer of aggregate reinsurance protection attaching at $1.55 billion.
As a result, it seems likely hurricane Laura will tip Travelers into that aggregate reinsurance layer, with a portion of the losses from the storm to be ceded to reinsurers.
Progressive is another carrier that the Morgan Stanley analysts cover in detail, with a property market share of 2.1% in the states, although this is less than 1% of its total annual premium.
However, Progressive is already close to hitting the $345 million retention on its aggregate excess-of-loss reinsurance treaty with $276 million of catastrophe losses so far this year in its property insurance book.
So there’s a good chance hurricane Laura could tip Progressive into that aggregate reinsurance layer and result in its ceding some losses to its panel.
Finally, Hartford has a total property market share of ~1.8% in the exposed states, with commercial property having a ~1.5% market share, according to the analysts.
Losses should be manageable, they believe, with Hartford’s exposure representing 2.1% of annual premium.
However, with $322 million of year-to-date catastrophe losses, the carrier has some room before it hits the $700 million retention on its aggregate reinsurance, so this layer may be safe unless Laura’s impacts are particularly severe.
Chubb (NYSE:CB) will be another to watch though, as 10th largest homeowner writer in Texas and Louisiana, but also 4th largest commercial property writer.
State Farm is a top homeowner writer and the 7th commercial. USAA is up there at 3rd in homeowner writings in the region. Nationwide, Markel (NYSE:MKL), Farmers Insurance, Liberty Mutual and AIG also all deserve watching for how hurricane Laura impacts them, given their positions in these states.
Of course, there are many other often smaller writers of catastrophe exposed property insurance that will take a hit from Laura, some of whom will have reinsurance arrangements that attach more quickly, or are proportional in nature.
In addition, some of the ILS fund managers have origination activities and relationships that bring them catastrophe exposed primary property risks through MGAs and the like. Some of these arrangements may find the collateralised coverage behind them attaches, increasing the impacts for the ILS market as a whole.
At this stage, it’s impossible to derive how large the reinsurance market losses could be from hurricane Laura, or how much of them could fall to the insurance-linked securities (ILS) market and ILS funds.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.