Contingent business interruption (CBI) claims following Hurricane Harvey are more likely to be a source of "adverse surprises" for reinsurers than ones linked to property, according to S&P Global Ratings analysts.
Early estimates of insured losses from the Category 4 hurricane, which hit Texas in late August and caused devastating flooding, are in the range of $6 billion.
"In some ways, it's a bit of a fool's game to estimate what the losses are," David Masters, director of the EMEA financial services group at S&P Global Ratings, said during a Sept. 5 press briefing. "That said, our current view is that while this is clearly tragic from a human perspective, from a reinsurance perspective, it is an earnings event rather than a capital event."
"We don't think this will have a material impact on pricing or profitability," he added.
In contrast to 2005's Hurricane Katrina, which caused over $60 billion of insured losses, a far higher proportion of Harvey-related losses are from flooding, which is covered by the government-backed National Flood Insurance Program rather than by private insurance, Masters said.
"Initial estimates for damage from wind are very, very modest," he said, adding that the impact was likely to fall more on primary insurers than reinsurers. But more claims may yet come through from Texas' many oil-related businesses, which have had to suspend work as a result of the flooding, he added.
"There are a number of oil refineries, factories and warehouses in Houston, which is the oil capital of the U.S. To what extent those refineries and pipelines are going to remain shut is difficult to assess at this point. But this is where the potential for adverse surprises for reinsurance resides at this point," Masters said.
But Hurricane Harvey is not likely to end downward pressure on pricing in the reinsurance market, said Dennis Sugrue, director and reinsurance sector specialist in S&P Global Ratings' financial services group.
"There may be some localized effects on pricing for Gulf exposures, perhaps in the way that we saw following the Tohoku and New Zealand earthquakes. But it's probably not a market-turning event," he said.
Christchurch, New Zealand, and Tohoku, Japan, were both hit by major earthquakes in 2011, the latter leading to a tsunami that killed thousands and triggered a nuclear meltdown at the Fukushima power plant.
S&P Global Ratings analysts are closely "watching and monitoring" Hurricane Irma, a powerful Category 5 storm that could strike Florida and the Caribbean.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.