Extracts from the Alphabet15th September, 2017
As of today (September 7) the extracts include Harvey, Irma, José and Katia. We have a reasonable idea of how much hurricane/tropical storm Harvey will cost, probably $75 to $100 billion in economic damage and somewhere between $15 and $20 billion insured damage. Those numbers of themselves underline the need for the development of partnerships between Government and insurers to reduce, if not eliminate, the huge gap between economic and insured losses.
It is much too early to predict how much Hurricane Irma will cost. At the moment it is appropriate to focus on the human consequences of this monster. Yet again I find myself reminded of the great poem “Beowulf”. Harvey may be described as Grendel whom Beowulf killed. After Grendel came Grendel’s mother who was much worse. She may be reasonably be described as Irma. Who knows what is to follow with José and Katia?
I recall that in 2005 underwriters were extremely worried that Hurricane Rita might turn left rather than right when it hit land on the Texas coast. Had it turned left it would have caused severe damage in Galveston which would undoubtedly have been a great loss for insurers as it is a major shipbuilding port. In any event 2005 was a much more expensive year for insurers than the World Trade Center disaster in 2001. We might recall that the reason why WTC had such an impact on insurance rates was because of the shock to the system that terrorism could strike mainland USA.
Probably it would be wrong to draw too many conclusions from the alphabetical extract which we are now experiencing. Personally I have thought that the insurance market would require a mixture of insured losses and serious general financial problems to generate a strong recovery in rates, terms and conditions. Maybe that will prove not to be required. If 2017 generates a series of disasters that might be enough to frighten away capital which has appeared to believe that the alphabet is not dangerous.