Insurers and reinsurers alike will see Q3 insured losses that risk surpassing $100 billion in the wake of Hurricanes Harvey, Irma and Maria as well as two major earthquakes in Mexico, Morgan Stanley estimates in its latest industry update.

The 2017 third quarter “could see one of the largest quarterly insured losses in history,” Morgan Stanley said. In a note of optimism, it added that “the industry should be able to withstand the hit.

A tally of preliminary figures from the hurricanes and Mexico earthquakes indicates a potentially significant number, assuming the estimates hold.

Morgan Stanley bases its figure in part, on AIR Worldwide estimates of $40 billion to $85 billion in insured losses from Hurricane Maria, 85 percent of which comes from Puerto Rico. Hurricane Harvey left between $10 to $25 billion in insured losses (excluding $11 billion in National Flood Insurance Program losses), and Hurricane Irma left behind between $32 billion and $52 billion in insured losses (including $10 billion to $20 billion from the Caribbean).

There’s also an estimate from the two September earthquake that damaged parts of Mexico, which Morgan Stanley said could hit $3 billion in insured losses.

Even if the number surpasses $100 billion, however, Morgan Stanley said the U.S. P/C industry and global reinsurers can handle it. Consider: total insured losses from the combined disasters will range from $83 billion to $165 billion, according to its estimate. But the U.S. P/C insurers have more than $700 billion in capital and global reinsurance capital surpasses $300 billion, including $60 billion of alternative capital.

Even if the industry can handle the losses, Morgan Stanley notes there will be consequences.

“The losses will significantly impact [insurers’ and reinsurers’] earnings and excess capital positions,” Morgan Stanley said.

A question that remains: will insurers and reinsurers face a hardening market? Morgan Stanley noted that most investors are skeptical that this will happen, but it predicted that “heightened catastrophe losses” will lead to improving property insurance and reinsurance pricing.

For now, insurers and reinsurers are continuing to assess losses from Harvey, Irma and now Maria. Morgan Stanley said that Maria will affect a relatively concentrated market in Puerto Rico, where the three largest writers handle more than 60 percent of the market. AIG is among the top 10 priary insurers there, with global reinsurers AXIS, XL Catlin and RenaissanceRe among the companies doing business there.

Source: Morgan Stanley

Topics Catastrophe Natural Disasters Profit Loss Reinsurance Hurricane Mexico