Hurricanes and the impact on the re/insurance market

After 12 years without a major hurricane (Saffir-Simpson cat 3 and above) making landfall in the US, in 2017 a record three category 4+ hurricanes came ashore and caused significant economic and insured losses.

On 25 August, Harvey made landfall over the southern Texas coast as a category 4 hurricane, the first major hurricane to make US landfall since Wilma in 2005. While the winds weakened considerably after landfall, Harvey stalled along the Texas coast, unleashing unprecedented accumulated rainfall that caused catastrophic inland flooding in the larger Houston area that displaced 30 000 people and damaged or destroyed nearly 200 000 homes and businesses.

Harvey was only the first of a series of major hurricanes still to come. Just a few days later, Category 4 Irma devastated the Caribbean, while flooding from the combination of storm surge and extreme precipitation affected parts of Florida and South Carolina. Next, on 20 September, another Category 4 Maria brought massive destruction to Puerto Rico and Dominica.

Insured market losses from the three hurricanes and two earthquakes in Mexico are currently estimated to be around USD 95 billion, resulting from wind, storm surge and precipitation-driven flood damages to residential and commercial properties. Given the vast geographic footprint of the three hurricanes, affecting multiple locations in quick succession and impacting multiple classes of business, a full assessment of the losses is still pending. Preliminary estimates are thus subject to a high degree of uncertainty. The economic losses from the three events will be much higher given the significant flood damage – mostly uninsured – from Hurricane Harvey in Houston, a high-population city, extended power outage in Puerto Rico due to Maria, and post-event loss amplification.1

Impact on the re/insurance industry: an earnings and capital event

The impact of the 2017 hurricanes on the re/insurance industry will be considerable, but not unprecedented. In 2005, the Caribbean and the US were also hit by a series of powerful hurricanes, each causing insured losses in double-digit billions. Katrina, Rita and Wilma combined caused insured losses of USD 90 billion (or USD 113 billion at current prices). The hurricane seasons of 1992, 2004, 2008, and 2012 also caused major insured and economic damages.

Losses from select North American hurricanes seasons, at 2017, USD billion

Company disclosures and assessments by financial analysts suggest there was about an equal split between primary insurance and reinsurance of the loss burden from the 2017 hurricanes. Based on this, the US primary insurance industry is expected to be liable for around USD 45 billion (ie, adding around 9 percentage points to its combined ratio), or 8% of the US industry capital of around USD 580 billion.2

This year's hurricane season has also had major impact on the balance sheets of the global reinsurers. According to company disclosures, the hurricanes caused losses of between 7% and 14% of global reinsurers' capital, and are expected to absorb the industry's net income for the year. Unlike previous larger catastrophe loss events, alternative capital vehicles have also been substantially affected by the 2017 hurricanes, given their high exposure to Florida-related risks and the retrocession market. Significant amounts of collateral in affected contracts are either paid out or "trapped" after putting up loss reserves. These amounts will therefore not be available for in upcoming renewals season.


1. Price increases following a major catastrophe, caused by a (local) scarcity of resources and increased demand for reconstruction.

2. Statutory capital by end of 2016, excluding reinsurers, Source A.M. Best.