Insurers' Capital Positions Should Withstand Hurricane Laura Losses

While the economic and insured losses from Hurricane Laura will be significant, the catastrophe is unlikely to prompt downgrades of individual property-casualty insurers or reinsurers, according to Fitch Ratings.

In a commentary, Fitch noted that while losses will take some time to reconcile, there are indications that Hurricane Laura will likely be an earnings event and not a capital event for the property-casualty industry.

Fitch said that the property-casualty insurers it rates with the largest property market share in Louisiana had robust capital positions at midyear, despite the impact of the COVID-19 pandemic.

Hurricane Laura made landfall along the Louisiana coastline as a Category 4 hurricane and was among the strongest ever to hit the state and the first major hurricane landfall in Louisiana since Hurricane Rita in 2005. Fitch noted that risk modelers have estimated commercial and residential property losses from the storm at between $8 billion and $12 billion.

The rating agency noted that the ongoing pandemic may compound the normal logistical challenges of assessing damage to property following a catastrophe and could lead to modestly elevated levels of loss-adjustment expenses.

The Fitch commentary noted that losses related to Laura in combination with previous 2020 named storm landfalls in the United States, ongoing wildfires, and losses related to the coronavirus put added stress on property-casualty insurers' earnings.

Fitch said it expects that both the traditional reinsurance market and insurance-linked securities will see claims from Laura through both quota share treaties and excess of loss business that has seen an accumulation of losses in 2020. Given the expected size of the event, however, Fitch expects it to have a greater impact on primary insurance companies than reinsurers. Still, Laura's impact on earnings could add to the push for higher rates on property reinsurance at upcoming renewals, Fitch said.