Harvey losses to be swallowed by European cat budgets: Bernstein


European carriers are likely to absorb the impact from Hurricane Harvey within their existing natural catastrophe budgets, according to analysts at Bernstein.

Hurricane Harvey developed into a Category four hurricane and made landfall near Rockport, Texas on 25 August. In addition to direct losses, the storm is causing heavy rainfall and storm surge-related losses along coastal Texas.

Bernstein predicts that Harvey will trigger losses of between $180mn and $340mn for Munich Re and Swiss Re – within the companies’ third quarter catastrophe budgets. Munich Re has set aside $440mn to pay for cats in Q3, while Swiss Re has put aside $500mn.

Both reinsurers, on the other hand, have very strong capital buffers, $27bn and $12bn for Munich Re and Swiss Re respectively so even under a worst case scenario, the event is unlikely to pose a material impact to the capital ratio.

Bernstein analysts expect the insured losses for the property damage and subsequent business interruption claims to be borne equally by the direct market and reinsurance market.

Whereas the majority of the personal lines flood losses will be borne by the National Flood Insurance Programme (NFIP), motor insurance claims will primarily come through the US domestic personal and commercial lines insurance market.

In terms of Lloyd’s of London syndicates, Hiscox, Beazley and Lancashire write significant catastrophe exposed business, the analysts noted.

However, both Hiscox and Beazley have significant reinsurance or have been placed via third party; Bernstein estimates 60-80 percent in both insurers’ cases. Lancashire tends to write high layers which are unlikely to be significantly impacted by this event.

Bernstein analysts expect the event to be within budget for all three companies. Zurich has a 3.9 percent market share in commercial lines in Texas. Assuming total commercial lines losses of $2bn would suggest an $80mn loss to Zurich.

Zurich budgets for $200mn cat losses per quarter, so in Bernstein’s base case analysts would not expect Harvey to be material for earnings, capital or valuation.