QBE Braces For Irma Impact
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According to Moody’s credit rating agency the impact from Hurricane Irma on the insurance sector will be big - with primary and reinsurance groups hardest hit of all in many cases.
Moody’s warned that “Primary property and casualty insurers will incur significant losses as a result of Hurricane Irma, particularly from the homeowners, commercial property and auto physical damage lines of business.
“In particular, Florida-only insurers and their reinsurers will bear outsize losses, while large national primary insurers have considerable resources to withstand a significant event."
According to Moody’s Australia’s QBE is one of the top 10 commercial property insurers in the Florida market. In a weekly credit report (https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_197264 - free subscription), QBE was the 9th biggest insurer in terms of exposure in this class of insurance.
Moody’s estimated QBE had $US172 million of what it called “Florida Direct Premiums, or 19% of its US Direct Written premiums of $US916 million
Moody's pointed out that contingent business-interruption insurance, which is much less common, covers business-interruption losses caused when access to a building is lost, even though the building itself is not damaged.
"A third type of business-interruption insurance, power outage coverage, is also less common, but could pay significant claims if power outages continue for an extended period. As with homeowners, the Florida-only commercial property writers purchase significant quantities of property-catastrophe reinsurance,“ Moody’s said.
In other words these insurance lasses could be a bit of a problem for commercial property insurers such as QBE. QBE shares rose 0.7% yesterday on the ASX to close at $10.25.
Interestingly Warren Buffett’s Geico/Berkshire Hathaway is the most exposed of the car insurers in Florida with more than $US1.25 billion of premiums written directly to Florida customers - that was just 12.3% of the group’s total US premiums of $US10.1 billion (Geico/Berkshire Hathaway has a surplus of $US137.1 billion, according to Moody's).
Moody’s also warned that the impact could fall hardest on reinsurers. "Traditional reinsurers and alternative capital providers such as catastrophe bonds, collateralized reinsurance and sidecars likely will bear substantial losses from Hurricane Irma. Reinsurers with an outsize concentration in Florida will be more vulnerable than those with a globally diversified catastrophe portfolios,” Moody’s said.
“Reinsurance losses related to Irma will depend on the underlying exposures of individual cedants (typically a reinsurer) as well as the terms and conditions of the underlying primary insurance policies and the reinsurance contracts. The majority of reinsurers also cede significant peak zone catastrophe business to alternative capital providers through collateralized reinsurance and catastrophe bonds.
"Two major hurricanes in less than one month will result in higher pricing for US-catastrophe-exposed business. However, price increases are likely to be lower relative to prior severe events given our expectation of continued interest by alternative capital,” Moody’s said.
The impact though will be felt worldwide and with the words major reinsurers meeting in Monaco this week to discuss 2018 business and contracts, thinking on probably premium costs will change dramatically as a result of these two hurricanes (and to a lesser extent, Debbie’s damage bill in Australia).
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.