Today’s report titled, “No Respite For Re/Insurers As HurricaneIrma Prepares To Give A Big Jolt,” from S&PGlobal Ratings has bad news for insurers and reinsurers alike.Depending on the extent to which Hurricane Irma makes a landfall inFlorida, there could be much higher insured losses compared toHurricane Harvey. As projected by AIR Worldwide, if a Category 5,Andrew-like hurricane were to strike just south of Miami and alittle north of the city of Homestead, the total insured losses forFlorida could reach upward of $130 billion.

“Strong capitalization will help mitigate the impact, but Irmawill likely stress-test not only the re/insurers but also thestaying power of third-party capital,” said S&P Global creditanalyst Hardeep Manku. “Regional pricing is also likely to harden,but the impact on global re/insurance pricing is debatable,” headded.

While tallying losses to date from Hurricane Harvey,the re/insurance sector is likely to have little respite asHurricane Irma is shaping up to cause a fargreater hit to lives and homes than Hurricane Harvey.

As S&P explains, Florida is one of the peak wind exposurezones for many re/insurers, and third-party capital issignificantly involved. Post-Hurricane Andrew, the primary insurersturned to reinsurance to manage risk. Therefore, S&P believes,reinsurers rather than primary insurers will bear the brunt ofcovered losses. This is different from S&P’s view on HurricaneHarvey, where it’s estimated that primary insurers will retain mostof the losses.

With the re/insurers earnings already coping with HurricaneHarvey-related losses, capital will potentially take a hit. Andalthough the ratings are supported by record-high surplus levels,S&P would consider a company that experiences large losses thattranslate into capital erosion as an outlier that could be subjectto a negative rating action.

Nevertheless, S&P cautions, the extent of rating actionswill depend on reinsurers’ capital buffers for the current ratings,reinsurers’ earnings power over the next two years, andmanagement’s intent and plan to replenish the capital.

Related: Auto damage after a hurricane: comp orcollision?

Wind speeds for Hurricane Irma continue to be well over 150mph as the storm tracks across the Caribbean. By the time it hitsFlorida, the speeds could be under 100 mph. (Photo:Shutterstock)

It’s wind and storm surge for Irma

For Hurricane Irma, wind and storm surge are likely to be theprimary cause for losses rather than flood-related damage as is thecase for Hurricane Harvey, which will affect residential propertythe most. As a result, S&P expects the difference betweeninsured losses and economic losses to be narrower. S&P alsoexpects losses for personal auto to be less than losses from Harveybecause so many Florida residents have evacuated, unlike HurricaneHarvey where many sheltered in place or were unable to leave theaffected areas because of the flooding.

Reinsurers will have a significant exposure to potential damagesarising from Hurricane Irma, reports S&P, unlike in the case ofHurricane Harvey. Florida wind is considered a peak zone for manyreinsurers. These reinsurers provide significant coverage toCitizens Property Insurance Corp. (a not-for-profit governmententity, which is the primary insurer of last resort), and to theFlorida Hurricane Catastrophe Fund (FHCF).

S&P has observed insurers raise their reinsuranceutilization in the past five years, with some buying higher layersfor greater severity protection. Therefore, S&P says, theresultant impact for primary insurers will be limited to their netretention layers, with the bulk of the insured losses beingtransferred to reinsurers, the state catastrophe fund, catastrophebonds, and similar structures.

And with Hurricane Jose and Hurricane Katia waiting in thewings, insurers and reinsurers as well as property owners arefacing a stressful hurricane season.

The report is available to subscribers of RatingsDirect atwww.globalcreditportal.com and atwww.spcapitaliq.com. If you are not aRatingsDirect subscriber, you may purchase a copy of the report bycalling (1) 212-438-7280 or sending an e-mail to [email protected].

Related: FEMA is almost out of money as Hurricane Irmathreatens Florida