Hurricane Harvey could cost insurance industry $20B: J.P. Morgan

Damages from hurricane Harvey could end up near the higher end of estimates prior to the storm hitting land, but the insurance industry should still be able to manage the losses.

After making landfall on Friday near Corpus Christi, Texas, the Category 4 storm continues to bring catastrophic amounts of flooding to the state’s coast, including the Houston and Galveston area.

With more rain and flooding expected for another week, J.P. Morgan estimates that Harvey could result in US$10 billion to US$20 billion of losses for the insurance industry. That would make it one of the Top 10 most costly hurricanes to hit the United States.

Industry sources expected the loss could be anywhere from US$5 billion to US$20 billion prior to landfall.

Harvey’s costs may mount to US$30 billion when including expenses tied to business interruption, infrastructure, the power grid and labour force, according to Chuck Watson, a risk modeler with Enki Research. He expects less than a third of that sum will be covered by the insurance industry. Katrina, the most expensive hurricane to hit the U.S., cost about US$118 billion, while Sandy in 2012 cost about US$75 billion.

The last hurricane to make landfall in Texas was hurricane Ike in 2008. It made landfall as a Category 2 storm in the highly populated area of Galveston and caused US$13 billion of insured damage.

J.P. Morgan analyst Sarah DeWitt said Ike was a weaker storm and didn’t stall like Harvey. She estimates that Harvey could result in losses that amount to slightly less than a quarter’s worth of earnings for much of the commercial (re)insurance industry. She said it would make it an earnings event that doesn’t need additional capital.

Flooding is not covered under homeowner’s insurance, but it is covered under commercial insurance and could therefore result in meaningful losses for the commercial reinsurers and insurers.