S&P: Primary P/C Insurers, Not Reinsurers, to Bear Brunt of Harvey’s Insured Losses

August 29, 2017

While it’s too early to accurately quantify the insured losses related to Hurricane Harvey, primary insurance carriers — as opposed to reinsurers — would retain the majority of losses, according to analysts at S&P Global Ratings.

Regional and local primary insurers could be hurt most by the storm.

According to an article by the ratings firm, early estimates from catastrophe modeling firms indicate Harvey’s insured losses could total up to $6 billion, the bulk of which will be paid by primary insurers.

Based on these early estimates, S&P said it believes that Harvey will likely be an “earnings event rather than a capital event” for property/casualty (P/C) insurers and reinsurers. As a result, its analysts do not expect to take many negative ratings actions in these sectors, although there could be ones on a few outliers.

“Primary insurers–as opposed to reinsurers–will bear the brunt of the covered losses from Hurricane Harvey,” said S&P credit analyst Taoufik Gharib. “However, the effect on individual companies will vary. While the large, national primary players have sufficient geographic and product diversification to absorb the losses, some of the regional and local players could face significant hits to their earnings and possibly their capital.”

Hurricane Harvey hit Rockport, Texas, U.S., on Saturday, Aug. 26, 2017. Photographer: Alex Scott/Bloomberg

With the earnings of certain personal lines players already stretched, the hurricane-related losses could wipe out their earnings for the year, SP noted. Consequently, it’s possible there could be negative rating actions on certain outliers, specifically those where capital levels might decline beyond base-case assumptions.

S&P said it expects more detailed information about personal and commercial insurance losses to emerge in the days and weeks ahead. It expects losses to be spread among many national and regional carriers as well as their reinsurers. While estimates for total insured losses are still preliminary, economic damages from Harvey will dwarf insured losses.

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