Fitch Ratings said Monday it expects Hurricane Rita will represent a material loss to the insurance industry and will create further strain on insurers’ claims-adjusting resources. However, Fitch does not expect any significant insurer insolvencies as a result of the storm, nor does Fitch expect to change a large number of insurance company ratings as a result of Hurricane Rita losses.
Fitch has performed a preliminary analysis of the insured loss from Hurricane Rita. At this point, the analysis is based on public market share data by line of business for insurers writing business in Texas and Louisiana. This analysis assumes insurers bear the loss in proportion to their market share in the affected areas and is conservative because it does not reflect the benefit of any reinsurance that the insurers may have purchased.
The insured losses from Rita add to this year’s total insured losses from Hurricanes Dennis, Katrina, and Ophelia. If these losses come in at the high end of the range of estimates, the 2005 hurricane season already has cost insurers as much as $70 billion, representing approximately 17.5% of the U.S. insurance industry’s statutory surplus, or approximately two full years of statutory earnings.
Reinsurers’ exposure to Rita is not considered in this initial analysis, since data is available only for direct written premium. However, as a result of this preliminary analysis, Fitch is not placing any additional insurers on Rating Watch Negative at this time. Fitch intends to refine its analysis as companies begin to report their estimated losses. Fitch notes that it is possible that some insurers or reinsurers may be placed on Rating Watch Negative or downgraded as the result of this later analysis. It is also possible that some insurers already on Rating Watch Negative may now be downgraded due to their combined losses from Rita and prior storms.
Fitch still believes there is great uncertainty as to how circumstances related to this unprecedented hurricane season will be resolved. While the Rating Outlook remains Stable for the U.S. Property/Casualty industry, there remains a near-term possibility of a change in Outlook to Negative, and Fitch will continue to closely scrutinize ongoing developments.
Fitch commented previously that several risks related to Hurricane Katrina will determine the Outlook on the U.S. property/casualty industry going forward, including: our updated view on the reliability of catastrophe modeling to support our risk-adjusted capital adequacy analysis of insurers; the ultimate resolution of flood-related losses, including resolutions of the well publicized suit by the Mississippi Attorney General to effectively void flood exclusions in homeowners and other property insurance policies; the ultimate size of insured losses retained by insurers and the degree insurers exhaust their catastrophe reinsurance protections; and the risk of a pricing squeeze on insurers should reinsurers raise rates for reinsurance to a materially greater degree than primary companies are able to raise rates on their insurance policies.
Hurricane Rita is not expected to trigger a loss to any of the catastrophe bonds rated by Fitch.
Hurricane Rita made landfall at 3:30 a.m. EDT, Saturday, Sept. 24, 2005, just east of Sabine Pass, Texas. Rita was a Category 3 storm on the Saffir-Simpson hurricane scale when it came ashore. Hurricane Rita had been as high as a Category 5 storm prior to landfall. Fortunately, however, the storm weakened on Friday and veered to the north, sparing Houston and Galveston a direct hit.
Catastrophe modeler AIR Worldwide has preliminarily estimated the insured loss at $2.5 billion to $5 billion. Other modelers have published a similar range of losses. Though this represents a relatively wide range, such estimates are typically refined as the National Weather Service publishes statistics on the storm track, wind speed, and central pressure. Total economic losses, which include losses to public property and uninsured losses, are typically twice the insured loss.
Although Rita is a smaller storm than Hurricane Katrina, it is still a significant storm. To put the storm in perspective, the loss from Hurricane Rita is similar in magnitude to last year’s Hurricanes Frances and Ivan. Thus, Rita could well represent one of the 10 costliest catastrophe losses in U.S. history.
The list below shows the approximate combined personal/commercial property insurance market share of the 20 largest insurers in Texas and Louisiana, excluding reinsurance.
The companies and their market shares as reported by Fitch are as follows:
* State Farm Mutual Group 20.7%;
* Allstate Insurance Co Group 11.7%;
* Farmers Insurance Group 7.6%;
* St Paul Travelers Companies 7.6%;
* United Services Automobile Association Group 4.4%;
* Combined Federal Insurance Co & Affiliates 3.1%;
* Nationwide Group 2.7%;
* Zurich Insurance Co Group 2.7%;
* Continental Casualty Group 2.6%;
* Vesta Fire Insurance Corporation 2.4%;
* Liberty Mutual Group 2.3%;
* Hartford Fire Group 2.3%;
* Texas Farm Bureau Underwriters 1.6%;
* Safeco Insurance Co Group 1.4%;
* Firemans Fund Insurance Group 1.0%;
* Ace American Insurance Co. 1.0%;
* Republic Companies Inc. 0.9%;
* FM Global 0.9%;
* National Lloyds Insurance Co. 0.8%;
* Louisiana Farm Bureau Mutual Insurance Co. 0.8%.