Hurricane Laura – 27th August 2020

Hurricane Laura has struck the coast of Louisiana as a category 4 hurricane, one of the strongest storms ever to hit the Gulf Coast of the USA.  Along with winds of up to 150mph (240km/hour), the storm has caused a surge of water up to 20 feet (6m).  A 350 mile stretch of coast from New Orleans in the East to Galveston, Texas in the West has been issued with flood warnings.  Heavy rain, potentially up to 12 inches in 24 hours, will exacerbate the flooding.  Authorities have warned of an “unsurvivable” surge which will move up to 40 miles inland.  500,000 residents were told to evacuate.

Almost 200,000 homes in Louisiana and a further 45,000 homes in neighbouring Texas are without power.  The storm has already passed over oilfields in the Gulf, with personnel evacuated from 300 production platforms.  A number of rigs have been moved out of the storm’s path.

Early estimates of the cost to insurers are invariably well wide of the mark.  Modelling agency RMS has used a series of earlier losses to indicate a range of insured loss from $1 billion to $6 billion.  However, parallels can be drawn between this storm and 2005’s Hurricane Rita (the “R” of KRW) which made landfall around 25 miles to the west as a category 3 storm and caused around $10 billion of insured damage.  Adjusting for inflation and for exposure changes over the past fifteen years would probably at least double that figure today.

Lloyd’s syndicates will have exposure to energy assets in the Gulf, some onshore property and into the reinsurance layers of local insurance companies.  The storm has in fact landed in relatively sparsely populated areas of the USA.  It has largely missed major conurbations such as Houston and New Orleans.  Reinsurance layers for the larger, statewide, insurance companies tend not to be engaged until the insured loss reaches $10 billion, although smaller, single state and regional insurers’ programme have a lower attachment point and are more likely to be impacted by this event.

Before making landfall, Laura passed across part of the oilfield in the Gulf of Mexico.  We understand from speaking to energy underwriters that it  passed over only around 100 of the more than 3,000 installations and production units in the Gulf.  Although some jack-ups needed to be evacuated, it was possible to move a number of drill ships to safety.  A critical issue is understood to be the atmospheric pressure, which at 970mb was higher than for many similar storms.  Greater damage can be inflicted when pressure is lower, literally sucking water up into the air gap under rigs and underwriters are not currently expecting significant offshore loss activity from this event.

The hurricane season is generally considered to run from the beginning of June to the end of November, although peak activity is throughout August and September.  This has already been an active season, with Tropical Storm Fay and Hurricanes Hanna and Isaias making landfall on the US mainland in July and August.

Many insurers were reporting lower loss activity in the first half of the year, with the obvious exception of Covid-19.  There has already been significant degree of loss activity during July and August, including losses to marine and aviation underwriters from the explosion in Beirut, the loss of aircraft in Shanghai and in Kozhikode, India  and an oil spill off the coast of Mauritius. In California, there has been another outbreak of wildfires, although this early in the year the fires tend not to be fanned by the winds that made outbreaks in 2017 and 2018 so difficult for the fire department to fight and so expensive for insurers.  We understand that these fires have largely been brought under control and although extensive areas of brush were burned, few structures were damaged.  Iowa, which is not normally considered a major catastrophe zone, suffered a series of severe thunderstorms, known as a derecho, on 10 August.  The storm was accompanied by high sustained winds.  We understand that this will be a substantial loss to the crop market, potentially the largest that it has ever sustained.

Although the reinsurance market has not hardened to the degree seen in property and liability insurance renewals, there was a rapid increase for loss impacted renewals of Japanese, international and Florida renewals in the second quarter of this year.  Reinsurers are already managing exposures to Covid-19 losses and the fall in equity markets and in interest rates. Further rate hardening throughout 2021 is inevitable.

We will report further as new information emerges. We will include some commentary on recent loss activity in our forthcoming on-line client presentations.