Once Hurricane Florence made landfall in North Carlina on Sept. 14, its lower wind speed and sluggish pace made it much more of a flood event than a wind one. As a result, modelers and other experts are making relatively low insured loss predictions.

$2.5 Billion

Insured losses stemming from Hurricane Florence will reach about $2.5 billion, according to a Sept. 17 estimate from KC & Co.

The catastrophe modeler said its estimate includes privately insured wind, storm surge and inland flooding damage to residential, commercial and industrial properties and automobiles. It does not include National Flood Insurance Program-related losses.

KC& Co.’s comes after the hurricane made landfall with on Sept. 14 near Wrightsville Beach, N.C., with Category 1 wind speeds. While the hurricane did not hit land as a Category 5 storm as initially predicted, it slowed to about 6 miles per hour before making landfall and to as low as 2 miles per hour once it moved inland. The slow-moving storm left 30 inches or more of rain in parts of North Carolina, with peak storm surge reaching 10 feet in New Bern, N.C., KC& Co. said.

The KC& Co. estimate is lower than the $3 billion to $5 billion early estimate issued by CoreLogic on Sept. 14, a number including wind and storm surge but not insured losses related to rainfall, riverine or other flooding. But it is in synch with the low end of Willis Towers Watson’s preliminary estimate.

Willis Towers Watson Head of Property Broken Gary Marchitello now predicts that insured losses will land between a $2.5 billion and $5 billion range, a number lower than early predictions because the storm became less of a hurricane event with heavy winds and more of a flood event, “for which insurance penetration rates are generally low.”

Marchitello said in prepared remarks he expects the global P/C market to easily absorb losses from Florence without any prolonged market hardening, assuming there are no more major storms.

That said, he sees short term market disruption on the horizon.

Catastrophe Bond Market Remains Durable

Meanwhile, Willis Towers Watson Securities sees the storm causing a minor impact on the catastrophe bond market.

“Out of the approximately $28 billion of nonlife cat bonds outstanding, more than $13 billion in more than 80 tranches have exposure to the Carolinas,” the division noted in prepared remarks. “For the most part, the exposure to the Carolinas in these bonds is small.”

Exposure is not too large because the Carolinas has lower loss potential relative to other areas such as Florida, Willis towers Watson said.

Beyond that, Willis Towers Watson Securities notes that the $28 billion of nonlife cat bonds outstanding is a relatively small subset of the larger P/C insurance alternative capital sector – an estimated $88 billion at the end of 2017.

That larger number indicates a much larger loss potential, but “the aggregate exposure remains still considerably less than for a Florida landfall for a similar storm,” Willis Towers Watson Securities said.

Sources: KC & Co., Willis Towers Watson