Filed Under:Markets, E&S/Specialty

Fitch report analyzes potential effects of major storm season on large insurers

(Photo: Shutterstock/r.nagy)
(Photo: Shutterstock/r.nagy)

With hurricane season beginning on June 1, insurers and investors are looking for ways to predict what effect the storms might have on the industry.

To help companies estimate the level of losses they might incur, Fitch Ratings released a special report on May 28, titled “Hurricane Season 2015: A Desk Reference for Insurance Investors,” which analyzes the potential effects of a major storm season on large insurance companies and the industry as a whole. The report also compares forecasts for the 2015 hurricane season from several market experts, including National Oceanic and Atmospheric Administration (NOAA), Colorado State University (CSU) and Tropical Storm Research (TSR).

The experts are leaning toward a less severe North Atlantic hurricane season in 2015. If projections hold true, Florida could reach 10 consecutive years without a hurricane landfall. The last named storm to make landfall in Florida was Hurricane Wilma on Oct. 24, 2005. That year was the most active hurricane season ever recorded, and included Hurricane Katrina and Hurricane Rita among the named storms.

[Related: NOAA predicts below-normal hurricane season]

Fitch estimates that given the current substantial level of industry capitalization, it would likely take a record individual storm loss or a series of significant losses equal to 15% or more of industry aggregate surplus before the property and casualty sector outlook would become negative based on catastrophe experience.

State-sponsored insurers continue to turn to the capital markets for alternative methods of transferring catastrophe risks, according to Fitch. The report found that the continued low interest rate environment, along with the tendency of state-sponsored insurers to use alternatives to the traditional insurance risk transfer market, has generated significant growth in 2015 with repeat sponsors and new entrants issuing $1.4 billion of notes in the first half of 2015 with named storms as a trigger peril. This year’s growth was started by the Texas Windstorm Insurance Association (TWIA), which issued two tranches of notes totaling $700 million, making it the largest issuance in the market so far this year.

The full report, “Hurricane Season 2015: A Desk Reference for Insurance Investors,” is available on the Fitch Ratings web site to paid subscribers.

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