Will Hurricane Harvey Be The Costliest Storm The Insurance Industry's Ever Faced?

When Hurricane Sandy blew through the Northeast, trailing $68.4 billion in damages, insurers felt a $30 billion punch, according to Statista. The Gulf’s legendary Katrina drained some $80 billion from the pot.

But insurance companies could escape relatively unscathed from the weekend’s Hurricane Harvey, a Category 4 storm dubbed by Deutsche Bank “the biggest North Atlantic wind event in a decade.” The research firm considers Harvey “unlikely to be significant in isolation.”

Harvey Who?

Striking land between Corpus Christie and Galveston, Texas, the storm will incur fewer damages than it would have farther north or south. Despite its higher-than-expected wind speeds, the two- to three-feet surges in some areas were not as bad as expected, and oil centers and major ports remain mostly intact.

For this reason, Deutsche Bank expects insured losses to skew toward the lower end of estimates, which before landfall ranged between $6 billion and $20 billion. One Bloomberg source estimated a $30 billion regional bill with less than a third of all losses uninsured.

Related Link: How Will Harvey Impact Oil And Gasoline Prices?

Insurance companies will likely feel disproportionate effects.

“Our expectation is that losses are likely to skew toward the residential market as opposed to the commercial markets, and homeowners' flood losses are generally not covered by private insurance,” Deutsche Bank wrote.

While commercial carriers such as American International Group Inc (NYSE:AIG) and Chubb Ltd (NYSE:CB) are expected avoid significant hits, Deutsche Bank considers Allstate Corp (NYSE:ALL) and Progressive Corp (NYSE:PGR) particularly exposed to auto claims. Allstate and Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) are among the top insurers in Texas, according to the Wall Street Journal.

Insuring The Insured

By Deutsche Bank estimates, broader-focused reinsurers like Axis Capital Holdings Limited (NYSE:AXS) and Aspen Insurance Holdings Limited (NYSE:AHL) are expected to take greater hits than those emphasizing catastrophe, such as Everest Re Group Ltd (NYSE:RE) or RenaissanceRe Holdings Ltd. (NYSE:RNR).

The latter are seen to “have significantly reduced net cat-exposure by sponsoring large third-party insurance sidecars that will shoulder much of their risk.”

For the most part, analysts expect the market to have already adjusted for Harvey’s “modestly negative” effect, considering the 100-basis-point underperformance of insurance stocks.

“In all cases, we expect that Harvey could best be described as an earnings event and not a balance sheet event,” Deutsche Bank wrote. “The loss is likely to reach into reinsurance layers of protection as well, particularly due to ceded claims directed from the many small mutual insurance based in Texas.”