Hurricanes Harvey and Irma

12 September, 2017

Hurricanes Harvey and Irma

Members of the ALM will be well aware of the recent hurricanes, Harvey and Irma, which have recently hit parts of the Caribbean and the United States.   In the span of two weeks, two Category 4 hurricanes have struck the continental United States, which is the first time two Atlantic tropical cyclones of such strength have made landfall in the country in the same hurricane season. As ever with losses of this type, it still remains far too early to give an accurate estimate of the likely economic or insured cost of the losses. Given that there have been a number of articles in the press, and suggestions about the possible cost of the losses, we thought that it would be worthwhile to publish a short summary of the losses. As more facts and figures are revealed, and more becomes known, we will write more about these events in forthcoming ALM publications. The potential impact of these losses on the market will also be covered by some of our speakers at the ALM Autumn conference on 4 October. 

Hurricane Harvey

Hurricane Harvey was the first major hurricane to make landfall in the United  States since Wilma in 2005. It ended a record 12-year period in which no hurricanes made landfall at such an intensity in the country. It made landfall on 25 August, as a Category 4 hurricane (with wind speeds of 130 mph) near Corpus Christi in Texas. It was subsequently downgraded to a tropical storm but, in a four-day period, many areas of the state received more than 40 inches of rain as the system meandered over eastern Texas and adjacent waters, causing catastrophic flooding. The city of Houston was especially badly affected.

It is still far too early to estimate the potential economic and insured costs of the loss with any degree of accuracy as it will take months to assess all of the damage. Despite this, a number of estimates as to the economic damage have already been issued by various agencies. Based on current damage estimates made by multiple agencies, Hurricane Harvey is likely to be at least the second-most costly natural disaster in U.S. history, behind only Hurricane Katrina in 2005.Moody's Analytics has estimated the total economic cost of the storm at $81 billion to $108 billion. Most of the economic losses are likely to emanate from damage to homes and commercial property.  

It is also important to understand that Harvey is likely to become more of a “flood” rather than a “wind” event in terms of insurance, as most of the damage (away from Corpus Christi and the coast) will have been caused by flooding and not the wind. A significant portion of this flood damage may turn out to be uninsured. Regular homeowner insurance policies generally exclude coverage for flooding, as the National Flood Insurance Program (NFIP) underwrites most flood insurance policies in the US. Although the purchase of flood insurance is obligatory for federally guaranteed mortgages for homes within the100-year flood plain, enforcement of the requirement is difficult, and many homes, even within the 100-year flood plain, lack flood insurance. This will have a profound impact on the size of the eventual insured loss.

There have already been a number of preliminary estimates made as to the potential insured cost of the loss. Catastrophe modeller, AIR Worldwide, estimated that the loss from the storm surge could be up to $2.3 billion, but this excludes the effect of the subsequent flooding.  A spokesman from Munich Re, Torsten Jeworrek, has estimated that insured losses for the global industry could total between $20 billion and $30 billion, which would put the storm on a similar scale to Hurricane Sandy, whose storm surge caused flooding in New York in 2012. 

Hurricane Irma

Hurricane Irma was the most intense Hurricane to hit the United States since Katrina in 2005, and it was the first major hurricane to hit the state of Florida since Wilma in 2005.  Irma was the second major hurricane of the 2017 Atlantic hurricane season.  Before hitting Florida, it had already caused catastrophic damage in BarbudaSaint BarthélemySaint MartinAnguilla, the British Virgin Islands and Cuba as a Category 5 hurricane. As a result of the Cuban topography, the hurricane was downgraded to Category 3 status.  However, it intensified once it had passed over Cuba. It finally made landfall as a Category 4 hurricane in Florida on 10 September on Cudjoe Key, about 30 miles east of Key West. The hurricane then headed across the Everglades and up the Gulf Coast of Florida, passing over Naples with a wind speed of 142 mph. The wind speed then reduced to 70 mph as the storm moved northwards.

It obviously remains far too early to give any accurate figures as to the likely economic and insured costs of hurricane Irma.  On 11th September, however, AIR Worldwide estimated that the insured loss would end up between $20 billion and $40 billion. It is worth considering that had the location of its US landfall, and subsequent path, been different, then the potential damage and cost could have been a lot worse. In particular, had the hurricane made landfall on the mainland rather than on the Keys, the potential economic and insured loss would have been a lot higher.  

Go to top