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As Category 3 Hurricane Harvey Heads for Texas, More Than 200,000 Coastal Homes at Risk
OLDWICK, N.J., Aug 25, 2017, (A. M. Best via COMTEX) -- Copyright (C) 2017 by A. M. Best Company, Inc.

Insurers are preparing for potentially catastrophic wind and water damage as Hurricane Harvey could become the first Category 3 hurricane to make landfall in the United States in nearly 12 years and the first to land in Texas since Hurricane Ike in 2008.

CoreLogic released a data analysis showing 232,721 coastal Texas homes could be at risk of hurricane-driven storm surge damage from Harvey, with a reconstruction cost value of about $39.6 billion. The analysis doesn’t include potential wind or rain-flooding losses.

Looking at wind damage only, Harvey could lead to industry damages in the low single-digit billion dollar range, said Ben Brookes, RMS capital markets solutions vice president, in a blog updated on Aug. 25.

“Low-attaching industry loss warranties could be at risk if the situation worsens dramatically, but that’s not the most likely outcome … We estimate there’s only a 10% chance that wind loss could exceed US$6 billion. Although it probably won’t happen — it’s possible, clearly,” he wrote, hoping for “another dodged bullet for our industry,” like Hurricane Matthew last year on the U.S. southeastern coast.

“Catastrophic and life-threatening flooding is expected across the middle and upper Texas coast from heavy rainfall of 15 to 25 inches, with isolated amounts as high as 35 inches through Wednesday (Aug. 30),” warned the National Hurricane Center at the National Oceanic and Atmospheric Administration.

Overland flooding could lead to catastrophic weather-related losses for automobile insurers for the third year in a row (Best’s News Service, Aug. 22, 2017).

Farmers Insurance has staged mobile claims centers outside the hurricane’s path but close enough to respond to damaged areas quickly, said spokeswoman Carrie Bonney. “As the path moves, Farmers’ estimates for potentially exposed customers changes, however, it is likely that more than 100,000 customers will be affected by Harvey.”

Bonney said the potential for related storm activity has the insurer considering that customers in other areas will be affected by “severe thunderstorms, wind and possibly tornadoes.”

State Farm has deployed thousands of employees and six multiple catastrophe response vehicles to Texas, said spokesman Chris Pilcic, currently staging in Dallas and Austin.

NOAA issued a storm surge warning for much of the Texas coast, saying the surge could reach heights of six-to-12 feet.

Insurance Council of Texas spokesman Mark Hanna said, “Harvey is expected to bring life-threatening storm surge, rainfall, and wind damage … Flooding could also reach inland to southeast Texas and central Texas with potential flooding in Houston, Austin, and San Antonio.”

The storm’s path puts it on track to make landfall near Corpus Christi, which would make it the first to do so in more than 40 years.

An AIR Worldwide alert included the impact on the energy sector. “Offshore oil and gas platforms and rigs have begun to be evacuated in anticipation of Hurricane Harvey. Anadarko Petroleum has removed nonessential staff and temporarily shut off production at four facilities, while Royal Dutch Shell and Exxon Mobil have also started curbing production. Other oil companies are closely monitoring the storm and will evaluate procedures as necessary,” AIR said.

Equity analyst Andreas Van Embden, at Peel Hunt in London, looked at the storm’s potential impact on the Lloyd’s market and wrote a single major event would be “unhelpful and lower the scope for special dividends without turning the underwriting cycle. However, it would materially impact property catastrophe portfolios within Lloyd’s, which are already suffering from low margins on a risk adjusted basis.

“More interesting is series of smaller loss events (in what could prove to be an active hurricane season according to the NOAA) that fall within retentions, which could force carriers with slim margins into a loss, triggering cutbacks and a stabilization of the cycle.”

Hurricane Ike hit Texas in September 2008 with nearly $12 billion in insured losses. More than half of Galveston Island was submerged in water; Ike brought a 16-foot storm surge. The Texas Department of Insurance said Texans filed more than 800,000 windstorm claims. The state-run Texas Windstorm Insurance Association took in more than 92,000 claims. After Ike and predecessor Hurricane Dolly, TWIA assessed the private insurance industry $530 million, plus it used all of its reserves and $1.5 billion in reinsurance to pay claims (Best’s News Service, Jan. 29, 2010).

The state Legislature established TWIA, a coastal wind-and-hail insurer of last resort, in 1971 in response to market conditions in the wake of Hurricane Celia. On Aug. 24, TWIA said it temporarily suspended new or increased coverage applications.

The top five all private passenger auto insurers in Texas in 2016, based on direct premiums written, were: State Farm Group, with a 17.7% market share; Allstate Insurance Group, 11.37%; Berkshire Hathaway Insurance Group, 11.09%; Farmers Insurance Group, 9.5%; and Progressive Insurance Group, 8.75%, according to BestLink.

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