11 August 2014ILS

Fitch: Hawaiian hurricanes manageable for P&C and cat bond markets

Insured losses from two hurricanes that have approached Hawaii appear to be manageable, but could depress third-quarter 2014 earnings for the largest primary writers in the state.

This is the situation according to Fitch Ratings, which found that the companies with the five largest homeowners exposures to these events, as measured by statutory direct written premium include State Farm Group, USAA Group and Allstate Insurance Group, as well as Hawaii focused insurers Zephyr Insurance Company and First Insurance Co of Hawaii.

In commercial lines, when combining the statutory direct written premiums for inland marine, commercial multi-peril (non liability) and allied lines, the companies with the largest market share in Hawaii include First Insurance Co. of Hawaii, American International Group, Fireman's Fund Group, Centauri Specialty Insurance Co. and Liberty Mutual Insurance Group.

While there are numerous outstanding catastrophe bonds that include Hawaii in their exposure to hurricane/named storm risk, given the current forecasts for the two storms and the relatively small insured loss expectations from the events, Fitch says it does not expect losses to materialize for any currently outstanding catastrophe bond.

Hurricane Iselle reached as high as a Category 4 hurricane, meaning it sustained wind speeds of over 130 mph, before being downgraded to a Category 1 hurricane and ultimately a tropical storm as it approached the Hawaiian Islands.

Hurricane Julio followed Iselle by several hundred miles and is expected to take a more northern path around the islands than its predecessor and bring additional rainfall to the islands, but avoid a significant landfall event. In the event of a more southern trajectory for Julio, the potential for insured losses would increase, but would likely remain manageable for the (re)insurance industry, Fitch says.

Major hurricane events in Hawaii have been a rare occurrence in recent history, but these two storm events may well serve to remind the insurance industry of the potential for material natural catastrophe losses that exists in the state.

The last hurricane event to significantly affect Hawaii came in 1992, when Hurricane Iniki made landfall with considerably higher intensity than what is currently being experienced with Iselle and Julio. On the 20th anniversary of Iniki in 2012, catastrophe modelling firm AIR Worldwide estimated that if Iniki occurred at that time, the storm would have generated more than $3 billion in insured losses.