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AM Best: Commercial Lines Will Face Brunt of Hurricane Ida Losses

Property damage and business interruption losses may contribute more heavily toward overall financial losses, with insured losses estimated to be between $15 billion and $25 billion.
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am best: commercial lines will face brunt of hurricane ida losses

Commercial property damage and business interruption claims from Hurricane Ida will tilt insured losses from last weekend's storm in New Orleans toward commercial lines, according to AM Best.

Hurricane Ida made landfall in Louisiana on Aug. 29—the 16-year anniversary of Hurricane Katrina—and is responsible for a rising death toll while making its way up the U.S. East Coast. Widespread power outages in south Louisiana could take weeks to repair, according to the Associated Press.

Property damage—in particular, flooding—and business interruption losses may contribute more heavily toward overall losses than did Hurricane Laura last year, which had a greater impact on the personal lines market. Insured losses from Ida, currently estimated at between $15 billion to $25 billion based on modelling data from Twelve Capital, come on the heels of a large loss year for Louisiana's insurers in 2020 when 300,000 claims were booked from Hurricanes Laura, Delta and Zeta. Losses from Ida are predicted to surpass both winter storm Uri—currently the largest insured loss in 2021—and Laura—the largest insured catastrophic event in 2020—according to Fitch Ratings.

Due to Ida's lower storm surge and improvements to the levee system protecting New Orleans, Ida's financial impact is expected to be less severe than that of Katrina, which caused 1,800 deaths and remains the costliest U.S. hurricane on record.

And while CoreLogic estimated that insured and uninsured losses from Ida could be between $27 billion and $40 billion, with only 40%-50% of the flood damages covered by insurance, “this is actually an improvement from the uninsured flood damages we saw from Hurricanes Harvey and Katrina," said Tom Larsen, principal, insurance solutions at CoreLogic. “The flood insurance gap is shrinking."

Losses from Ida will be “manageable" for insurers, according to AM Best. “Ida will likely be more of an earnings hit as opposed to a capital event with a sizeable amount of the loss...likely to be reinsured."

However, regionally focused carriers are more vulnerable to Ida's impact, according to a report from Moody's Investor Service.

“It will take months to determine the magnitude of insured damages and the degree to which the hurricane affects primary [property-casualty] insurers and regionally focused carriers, which are most vulnerable," Moody's report states. “Some of the losses will make their way to the reinsurance market through quota-share and excess-of-loss contracts. The U.S. Gulf Coast is a peak catastrophe zone for reinsurers, and those with exposure to Louisiana and surrounding states could incur meaningful losses."

“Ida could pressure reinsurers, whose natural-catastrophe budgets had already been increased following the Texas freeze, as they must contend with potentially high claims activity during the rest of 2021 Atlantic hurricane season," AM Best said.

And the 2021 Atlantic hurricane season is predicted to be above normal.

AM Best also notes that a surge in demand for materials and goods post-Ida could increase the level of reinsured losses meaningfully, especially in light of a 5.4% rise in the U.S. consumer price index from roughly a year ago.

Although the top ten insurers account for more than half of Louisiana's market share, only Louisiana Farm Bureau Mutual has high levels of concentrated business in the state, representing more than 80% of its premiums written. LA Citizens, the state's property insurer of last resort will likely bear a “significant share of losses along the Louisiana coast," according to Moody's.

AnneMarie McPherson is IA news editor.

The Trusted Choice® Disaster Relief Fund is available to assist Big “I" members and their staff in the event of unrecoverable losses caused by a hurricane or other natural disaster.

Individuals and businesses can donate to the fund online. Contributions are tax-deductible to the extent permitted by law.

For those seeking aid, visit the Trusted Choice Disaster Relief fund page to view guidelines and submit a grant application.