Hurricane Idalia, which hit Florida today, is testing a big bet.
Ajit Jain, Berkshire’s vice chairman of insurance operations, said in May that the company had written the maximum amount of property-casualty reinsurance allowed by the April 1 renewal date and that the unit’s written premiums had increased by 30% from last year.
While these returns are attractive, the risks are also significant. Depending on how much damage the 2023 hurricanes do, the reinsurance giant could stand to gain several billion dollars or lose as much as $15 billion in the Sunshine State.
So far, things are looking up for Warren Buffett’s company. Hurricane Idalia made landfall on Wednesday as a powerful Category 3 storm, but weakened to a Category 1 as it moved across Florida and into Georgia.
UBS analyst Brian Meredith estimated the average insured loss for Hurricane Idalia at $9.36 billion in a Tuesday note, citing RMS estimates from the Moody’s-affiliated risk modeling firm. That’s a fraction of the $112 billion in damage Hurricane Ian caused when it hit the state last year.
That number, made before the storm made landfall, could change a lot in the coming days. Sarah Hartley, senior manager of incident response at Modi’s RMS, said: “There is potential for a significant increase in sea surface temperatures across the Gulf of Mexico, the warmest in 40 years, along the Idalia route.”
Berkshire did not immediately respond. Baron Request for feedback.
Berkshire isn’t the only insurer attracting juicy premiums in the hurricane-prone state. In May, reinsurance giant
RenaissanceRe Holdings
(RNR) said it expects to write more property damage policies ahead of hurricane season due to “reasonably favorable rates.”
However, interest in renewals waned in the middle of the year, particularly in Florida, RenaissanceRe CEO Kevin O’Donnell said on a July earnings call. One of the reasons, he says, is that many primary insurers have reduced their exposure in the state or stopped writing altogether. Most of these policies went to the government-sponsored property insurance policy, which typically buys less insurance.
While the major insurers wanted to stay, many—after years of high losses and inadequate pricing—did not have the budgets to purchase additional insurance coverage. “The demand was with buyers, they didn’t have the wallet to be able to buy what they wanted,” O’Donnell said.
Primary insurers, who carry casualty losses before reinsurance, are in a more critical position this year. This can lead to bankruptcy for smaller companies with weak balance sheets, which often lack access to additional capital because they are not sold publicly, said Mayer Shields, managing director of investment bank KBW.
Florida’s property insurance market is dominated by private regional carriers. Among the publicly traded names are Progressive (PGR) and
All state
(All) are the only top 10 homeowner insurance underwriters, with 4% and 3.2% market share, respectively, according to UBS Meredith. Progressive has a relatively large share of the private car market at 20.8%, while Allstate has a 10.5% share.
On the other hand, the threshold at which insurers can assume their payment responsibilities is now much higher, so they may see less damage.
“Given expected losses averaging in the high single digits, we do not expect a material event for reinsurers, although reinsurance losses at the high end of the RMS range could eat into insurance layers,” Meredith wrote. The hurricane should help keep casualty reinsurance rates “strong” in 2024 renewal dates, he added.
Write to Evie Liu at [email protected]
