Hurricane Idalia losses manageable, but to sustain reinsurance demand: KBW

The eventual industry losses from hurricane Idalia are not expected to be that significant, with analysts at KBW saying they could be well below $10 billion, but also explaining that this should help to sustain demand for reinsurance.

With hurricane Idalia now having made landfall in the less populated Florida Big Bend, all thoughts not turn to industry impact.

As we explained, our sources are pointing at somewhere from the mid single-digit billions of dollars upwards, but remaining sub $10 billion seems to be the industry early consensus at this time.

KBW’s analyst team said the losses are expected to be “very” manageable, “Based on its currently-projected path, Hurricane Idalia’s insured losses are likely to be well below $10 billion.”

Also noting that as some of the earlier estimates reported pointing to sub-$10bn losses, it “implies that primary insurers – rather than reinsurers – will bear most of the losses.”

Given Idalia’s impacts come after a relatively costly first-half of catastrophe and severe weather losses for the United States insurers, KBW suggests that reinsurance demand should be sustained.

“We expect Idalia’s losses – which follow 1H23’s materially elevated weather-related losses and the Maui wildfires – to sustain primary insurers’ collective reinsurance demand and the reinsurers’ underwriting resolve, (keeping us broadly positive on the Bermudian reinsurers), and to further pressure Florida’s personal property insurance marketplace, which relies disproportionately on smaller insurers,” KBW’s analyst team stated.

While there will still be reinsurance and possibly some ILS market losses from a sub $10 billion hurricane event, the impact will be well-manageable, but should also firm up resolve to hold on to hard market gains.

Will hurricane Idalia be enough to change the trajectory of reinsurance rates alone?

It seems unlikely to drive more hardening, unless the industry loss proves to be much higher than the $10 billion mark.

But it will likely be another driving force for sustaining the higher reinsurance prices we’ve seen this year, including cat bond and ILS spreads, as well as the tighter terms and conditions, at the next rounds of renewals in 2024.