Initial Harvey loss estimates vary widely
As Hurricane Harvey continues to pummel the coast of Texas, causing widespread flooding that could last longer than some initial predictions, initial loss estimates from analysts and risk modelling agencies have varied widely.
Some analysts including JPMorgan in a research note have estimated losses could reach $20 billion. At the lower end of the spectrum AIR Worldwide has said losses from wind damage and storm surge (excluding flooding) could be between $1.2 billion and $2.3 billion.
Hurricane Harvey made landfall near the city of Rockport, Texas as a Category 4 hurricane on Friday, August 25, and caused widespread devastation.
According to the National Hurricane Center (NHC), winds at landfall were approximately 130 mph, with hurricane-force winds extending 40 miles from the centre and tropical storm-force winds extending 140 miles from the centre. Storm surge was estimated at 6 to 12 feet. Harvey weakened to a Category 1 by Saturday August 26 and was downgraded to a tropical storm with sustained winds of 70 mph later that day.
However, the storm has been caught between competing areas of atmospheric pressure which caused it to stall in place, dumping yet more rain on an already saturated and flooding area. Harvey is now off the coast again and is expected to make landfall a second time on the Texas/Louisiana border in the next 24 hours or so.
Many of the loss estimates from risk modelling agencies focus on the hurricane event and not the impact of the ongoing torrential rain and catastrophic flooding from Hurricane Harvey’s unprecedented precipitation. The Insurance Information Institute estimates flood losses reaching about $15 billion.
Hurricane Harvey is the first hurricane to hit Texas since Hurricane Ike (Category 2) in 2008.
S&P Global Ratings has gone for a mid-range estimate of around $6 billion. The rating agency stresses that, at this level, primary insurance carriers - as opposed to reinsurers - would retain the majority of losses. “Based on these early estimates, we believe that Hurricane Harvey will likely be an earnings event rather than a capital event for the property/casualty (P/C) insurers and reinsurers. As a result, we don't expect to take many negative ratings actions in these sectors, but there could be ones on a few outliers,” S&P said.
S&P also noted that given Hurricane Harvey's unprecedented precipitation, the ongoing flooding will likely exacerbate the magnitude of the insured losses, which will be mostly covered by the National Flood Insurance Program (NFIP). In addition, it expects the Texas Windstorm Insurance Association (TWIA) to be materially affected.
“As devastating as the wind damage was in Rockport and surrounding towns, flooding from Harvey’s torrential rains has had the greatest impact,” said Dr. Eric Uhlhorn, principal scientist at AIR Worldwide. “With a lack of large-scale atmospheric steering, Harvey's motion was stalled resulting in extremely heavy and continuous tropical rainfall in a concentrated area. Harvey has already unleashed catastrophic and unprecedented flooding in southeastern Texas, and these conditions are expected to last for several more days. Louisiana is already experiencing heavy rainfall; the flood threat there will likely spread eastward once Harvey begins its northeastward path toward Houston.”
Dr. Uhlhorn continued: “As a result of the unprecedented rainfall that has fallen in Houston and its surrounding areas, 66 of the 120 river gauging stations of the National Weather Service in Houston and Galveston are currently at various stages of flooding. By September 2, 74 of these gauging stations are expected to have flooded, about 50 of which will experience major flood stages. Many of the rivers in the area will crest with new record-setting flood levels. For example, the Buffalo Bayou, which flows through the downtown Houston area, is likely to crest at 73.0 feet, an astounding 11 feet higher than the previous historical record of 61.2 feet set in 1992. Similarly, Cypress Creek, which flows through neighbourhoods north of downtown Houston, is likely to crest about 4 feet higher than the previous record of 94.3 feet set in 1949.”
