Reinsurers in for a major stress test if Hurricane Dorian losses exceed Irma's: S&P

Reinsurers and alternative capital will bear the majority of losses caused by Hurricane Dorian if the Category 4 storm makes landfall in densely populated areas of the Florida peninsula, warned rating agency S&P Global.

The magnitude of insured losses from Hurricane Dorian could be significant as it tracks towards Florida, S&P said. Wind, and storm surge, and potentially flooding, would be the primary cause for losses, and the most affected business line would be residential property, especially where evacuation involves vehicles leaving affected areas.

According to the report, re/insurers are in for a major stress test if the losses from Hurricane Dorian were a multiple of those of 2017's Hurricane Irma, despite re/insurers' robust capitalization, below-average catastrophe losses in the first half of 2019, and the sector's catastrophe budgets and expected earnings providing a cushion.

Any potential material catastrophe losses from Hurricane Dorian will provide further support to the firming rate environment in the US primary and global reinsurance sectors.

S&P noted that the re/insurance sector is well placed to handle a severe event of Irma's magnitude. However, Dorian is already of higher intensity than Irma, and if it were to hit Miami and other densely populated areas with insured losses in the $100 billion area, it would be the biggest loss from any single event that the re/insurance sector would face.

"Such an event would certainly stress test the sector again and further test the alternative capital's staying power," said S&P Global Ratings credit analyst Hardeep Manku.

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