Insurers braced for $20bn Florence damage

Hurricane Florence remains on course to make landfall in the Carolinas late tomorrow, threatening to generate insured losses of as much as $20bn.

According to the latest advisory from the National Hurricane Center (NHC), Florence is still a Category 4 storm, though it is expected to strengthen over the next day or so.

The NHC forecast, and most other global models, call for a North Carolina landfall at Category 4 late on Thursday night.

As of 05:00 Atlantic Standard Time, or 10:00 in London, the storm was around 410 miles (660km) south of Bermuda and 975 miles east-southeast of Cape Fear in North Carolina with maximum sustained winds of 140mph (225km/h), the NHC said.

RMS chief modelling officer and executive vice president Mohsen Rahnama noted that it was still uncertain where Florence will make landfall. However, if it hits Wilmington, North Carolina – a city with high insured exposures – as expected, the losses will be high.

He estimated insured losses of between $8bn and $15bn, though he stressed that the range was not a forecast.

Rahnama’s estimate draws from other historical hurricanes in the region and are based on the assumption that losses could fall between those from Fran in 1996, which cost insurers $7.6bn in today’s money, and Hazel in 1954, which cost $15bn.

Hurricane Fran hit Wilmington, North Carolina as a Category 3 storm, and Hurricane Hazel hit the North/South Carolina border as a Category 4 storm.

The most devastating recent hurricane in the region was Hugo in 1989, which in today’s money generated insured losses of $20.5bn.

Rahnama noted that the “event is still forming and there’s a lot of uncertainty”. RMS' modelling assigns a 21 percent probability to the hurricane changing course and moving out into the Atlantic rather than making landfall..

Aside from Wilmington, other areas in jeopardy include Cape Hatteras, Myrtle Beach and the historic South Carolina city of Charleston.

Other North and South Carolina border areas, and also parts of Virginia could be affected.

Wind from Florence is expected to die down quickly after landfall, with wind impacts probably confined to South Carolina, North Carolina and southern Virginia.

RMS anticipates that rainfall will likely expand further west and northward, into northern Virginia and West Virginia.

In some areas as much as 15-20 inches of rain will fall, RMS estimated.

A deluge of that magnitude could lead to catastrophic flood loss, even though it is well under Harvey’s 50-plus inches of rainfall last year, RMS said.

It also warned that if Florence tracks over Virginia and southern Maryland, the implications for flood are significantly heightened, since the Washington DC metro area has already experienced several weeks of saturating rainfall.

The NHC’s rainfall prediction included isolated upper limits of 30 inches near Florence's track.

Rahnama estimates that the level of commercial/industrial insurance penetration in the Carolinas region at 90 percent and more than 70 percent for homeowners.

However, he pointed out that homeowners’ take-up varies by zip code, with the insurance cover in the coastal region higher.

SNL figures show that State Farm dominates the Carolinas’ market for both homeowners’ and personal auto insurance, with market shares of close to 19 percent in both categories.

USAA is the second-largest homeowners’ insurer, with an 8.3 percent share, while Geico, with almost 12 percent, is ranked second in personal auto.

The region is also home to two petrochemical plants and a power plant.

In its latest update, the NHC issued a storm surge and hurricane watch for the east coast of the US from Edisto Beach in South Carolina northward to the North Carolina-Virginia border, including the Pamlico and Albemarle Sounds.

Should the surge coincide with a high tide, waters could rise by as much as 12 feet (3.7m) around Cape Fear, North Carolina and Cape Lookout, and as much as 8 feet between Cape Lookout and Ocracoke Inlet.

Early Corelogic analysis has estimated that almost 759,000 homes in the Carolinas and Virginia are expected to suffer “severe damage” from Florence, with a reconstruction cost value (RCV) of about $170.2bn.

It noted that Virginia Beach had 346,573 properties at risk, with an RCV of almost $80bn.

Myrtle Beach has 93,660 homes, equivalent to an RCV of $16.5bn, while Charleston’s 133,239 homes in scope could cost $34.3bn to rebuild.

JP Morgan cited a JLT Re estimate based on historic hurricanes of insured damage from Hurricane Florence in North and South Carolina of between $8bn and $20bn.

“While [Hurricane] Hazel is probably the best analogy from an intensity standpoint, Hazel was a fast-moving storm, while Florence could be a slower storm and perhaps even stall, similar to Hurricane Harvey in Texas last year, bringing massive amounts of flooding and rain,” noted equity analyst Sarah DeWitt.

“In addition, Florence is making a southeast approach and expected to hit the coast perpendicular, which is unlike the other storms and a worst-case scenario.

An insured loss from Florence of $8bn-$20bn would be slightly less than one-quarter’s worth of earnings and 1-2 percent of book value on average, based on market shares of insurers and probable maximum losses of reinsurers, she added.