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But the story of the loss will also over time emerge at the individual company level, albeit the disclosure here will be incomplete and on a lag.
It is unscientific, but to take a round number, here are 10 entities that collectively will help define the Hurricane Ian loss and its broader significance.
1. Universal: How much vertical limit is enough?
For almost all Florida homeowners insurers, a $50bn+ event is an existential event, and for some a $30bn event could pose a real threat.
Based on 2021 market share figures, Universal is the largest homeowners writer in the state with 10.5%. The company buys its reinsurance down to $45mn and has $3.16bn of first-event cover without co-participations, and also has a bigger balance sheet than peers with $367mn of Q2 shareholder equity.
It did, however, go through the top of its private cover after Hurricane Irma deterioration (as others did), illustrating scope for even medium-sized events to catch out reinsurance programs supposed to extent to one-in-100-year events or beyond.
Which Florida homeowners insurers have bought enough vertical cover, and which haven’t, will be a central focus.
Reinsurance affordability will then be a follow-on issue for those that have, and is almost certain to provoke additional failures ahead of June 1, 2023.
2. FHCF: “The end of the FHCF as we know it”
The future of the homeowners market relies heavily on the Florida Hurricane Catastrophe Fund, a state-owned body which provides subsidized reinsurance.
The fund has liabilities that cap out at $17bn, which it believes will be fully triggered between a $21.6bn and $29.4bn industry loss. It is not 100% clear, but it seems likeliest that this range refers to the residential component of the loss.
Based on a typical 60% share for residential, you would need a $50bn total loss to hit this top-end, which is well within many loss estimates. Source intel suggests a heavy skew to residential for Ian, making a 65%-70% share for residential possible, which could mean total exhaustion at even $40bn-$45bn.
As Informed founder Ian Gutterman astutely pointed out (with customary understatement) this could be the “end of the FHCF as we know it”.
With capped liabilities and access to post-event funding through debt issuance, it isn’t going to go bust, but it’s not clear how much it will be able to reload surplus. And reduced surplus going into next renewal season could bring the curtain down on lots of standalone insurers that can’t survive without its cheap low-layer reinsurance.
3. Slide: Clearing the bar on capital-raising
Having taken on St John’s portfolio and walked straight into a major Florida loss year, Slide faces an early test as one of the few Florida start-ups over the last couple of years. Like others, the amount of vertical limit it has bought will be in focus, along with the extent of its reinsurance dependence on renewal with an eye-wateringly expensive June 1, 2023 on the horizon.
Further, Bruce Lucas’ start-up faces the challenge of reconciling its status as an InsurTech – where tech investors have little appetite for major balance sheet risk – with the reality of a concentration in a state with heavy cat exposure.
The firm’s underway Series B round could, of course, still be turbo-charged by both the scope it creates for rapid growth via Florida depopulation and the opportunity to charge increased rates. But investors will need to be convinced it is resilient to the loss and can affordably access reinsurance markets next year – a high bar that both Slide and other scale-ups/newcos will need to clear to raise capital.
4. AIG: A barometer of progress on underwriting transformation
No market has more dramatically re-underwritten its inwards book or more completely overhauled its outwards in recent years than AIG.
Its ability to generate much lower gross and net losses than previously will be closely watched as evidence of the progress of Peter Zaffino’s transformation project, after encouraging signs through last year.
As always, AIG will pick up the loss across a broad swathe of exposures. It will pick up hits through its high-net-worth (HNW) book, Lexington’s E&S property book, its retail property book, Lloyd’s platform Talbot and Validus Re.
Lexington had indicated it was pulling from the Florida HNW space, but this was effective August 1 so much of its exposure will have remained intact.
5. Vault: A litmus test for the HNW market
How Vault performs will be a further litmus test of the HNW component of the loss, which could be substantial given the number of expensive homes on Florida’s west coast.
Vault – founded as a reciprocal by Allied World in 2017 – like much of the HNW market has a big concentration in Florida. The geographical distribution of its portfolio is not clear, but the Scott Carmilani-chaired writer is based in St Petersburg, Florida – likely pointing to an early focus on building a book in the west of the state.
6. Lloyd’s: A test of the market’s de-risking
Through the 2010s Lloyd’s allowed itself to become an imbalanced portfolio with an excessive concentration on US cat risk.
Lloyd’s has historically picked up wind losses across a broad array of lines of business. Much of it comes via property coverholders where aggregates were often poorly managed, but it also takes losses through cat treaty, open market property, upstream energy, downstream energy and marine.
As a result it suffered in 2017 through the Harvey-Irma-Maria (HIM) trio of storms, and subsequently embarked on a scale-back of cat risk through the Hancock Remediation, and via an inadvertent loss of market share in treaty reinsurance.
Ian will test the degree to which this de-risking protects the Lloyd’s market from the worst of the loss, although much will also turn on the way individual syndicates have chosen to buy their outwards.
7. Axis Capital: How much cat exposure is there outside cat treaty?
Axis Capital is the posterchild for the Bonfire of Cat Limits. It pulled out of property reinsurance just after June 1 and said that it was not heavily active in that renewal (although residual treaty exposures seem likely).
Reporting a below-market loss will be key for CEO Albert Benchimol as a proof point in his de-risking of the portfolio. But it will also be an early test of how much cat exposure Bermudians will pick up through other parts of their portfolio.
Onshore E&S property, Lloyd’s binders, Lloyd’s open-market property, marine and other specialty classes like power and downstream energy could all generate losses for Bermudians. Being out of cat treaty is not the same thing as being out of cat.
8. Berkshire Hathaway: The price of June 1 opportunism
Berkshire inevitably picks up US cat losses from so many different sources that it is always going to sit high up the league table of cat losses in absolute terms.
With heavy flooding it will pick up losses through auto giant Geico, as well as picking up significant commercial losses through BHSI. Gen Re and TransRe (soon to be owned by Berkshire) will pick up treaty and fac losses.
But this time the firm will come under scrutiny for a potential outsized loss due to opportunistic moves to provide big lines to Floridian homeowners firms. Berkshire will, of course, be unconstrained by the losses, and closely watched as a name with enough cat capacity to solve the industry’s capacity problem that may be willing to accept increased volatility if it is paid to do so.
9. Nephila: Big lines down low
The second biggest ILS fund is one of the kings of the Florida market – deeply embedded, with long-standing relationships, a ton of expertise and massive line sizes fronted by Allianz ART.
It also tends to play relatively low down the towers, so it is sure to face major pressure, although the worst combined ratios will be reserved for losses stretching to lower rate-on-line layers.
Like others, these losses will make it challenging for Nephila to make sure it has the firepower to trade across all the deals it may want to as market conditions improve.
10. DE Shaw: A market of last resort
Having almost disappeared from the reinsurance and retro market following a soft market retrenchment by 2017, $60bn hedge fund DE Shaw has deployed progressively more aggregate as pricing recovered.
The trading desk of the hedge fund will generate a major loss as a result of Ian, and – along with Berkshire – provide some clue as to just how much of the Florida market (and retro buyers) ended up trading with markets of last resort. The early industry view, though, is that there are worse places to have put out big lines than Citizens where DE Shaw is huge.
Post-loss we will also see how a completely different model of alternative capital to ILS responds to falling deep into the red.
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