Experts project Michael's losses close to $ 10 billion, ready for insurance companies

Experts project Michael's losses close to $ 10 billion, ready for insurance companies https://i2.wp.com/www.eresviral.com/wp-content/uploads/2018/10/Expertos-proyectan-pérdidas-de-Michael-cerca-de-10-mil-millones-listas-para-compañías-de-seguros.jpg?fit=195%2C146&ssl=1

Experts project Michael's losses close to $ 10 billion, ready for insurance companies







Insured losses of Hurricane Michael It will probably be close to $ 8- $ 11 billion, according to experts in the insurance industry and the academy. They put the overall economic impact in the range of $ 30 to $ 40 billion. This number includes the loss of economic activity, the expense of the first to respond, the uninsured losses and the repair of the infrastructure.



If that projection of insured losses is maintained, Bob Hartwig, who teaches financial risk and insurance management at the University of South Carolina, says Michael would rank as the 11th most expensive insurance disaster in US history. UU it's Hurricane Katrina at almost $ 52 billion).



While Michael is horrendous and devastating to those in his path, there is some luck of good luck in the surprising numbers that may be associated with him.





Hector Retamal / AFP / Getty Images
View of the damage caused by Hurricane Michael in Mexico Beach, Florida, October 13, 2018.

It could be much worse.



"If there's a positive side here, it's the fact that where Michael came ashore and where he went into, these areas are not particularly densely populated in relation to most of the Florida coast," Hartwig said. "If it had affected Miami or Tampa, we would be talking about something very different here."



In addition, however catastrophic the damage, the insurance industry is unusually prepared to cover it. As hurricane The season began, Hartwig notes that insurance companies "collectively had a record $ 761 billion in capital to pay claims. Then, they entered the hurricane season of 2018 with an unprecedented financial strength in history. "



The combined losses of $ 2.5 billion from Florence and potentially $ 11 billion in Michael's claims are just one drop in that huge pool of cash coverage.





Robert P. Hartwig, Ph.D.
Last year, hurricanes Harvey, Irma and Maria accumulated a total of $ 55 billion in property losses in the United States. I'm not sure of the origins of the original photo, but I can ask the writer and answer him.

This contrasts with last year when hurricanes Harvey, Irma and Maria accumulated $ 55 billion in property losses (as shown in the chart above) and insurance companies selected reinsurance funds to help cover them.



While people on the road to storms like Michael seek protection against their ferocity, insurance companies do the same.



Local or regional insurers may not have the necessary capital to cover all the claims of a major disaster. So they protect themselves by buying reinsurance, which is based on a much larger global pool of funds.



One way to obtain that money is through a market for investment products collectively called securities linked to insurance, or ILS, a market valued at close to $ 100 billion, according to Steve Evans, editor-in-chief of the newsletter of the Artemis reinsurance industry. Catastrophe bonds (or cat bonds, as they are called in the business) are perhaps the best-known example of these.





Hector Retamal / AFP / Getty Images
View of the damage caused by Hurricane Michael in Mexico Beach, Florida, October 13, 2018.

Cat bonds are issued by insurance companies or municipalities (through investment banks) to help cover the cost of a disaster. Investors who buy them charge interest for the short life of the bond. But if there is a disaster in that time that meets the agreed criteria (such as severity level or insurance losses), investors lose their money to the issuing entity that uses it to pay claims.



These bonds are often issued on a seasonal or annual basis and are not linked to any specific disaster. But insurers can still find additional capital when a catastrophe is about to occur and even after it ends.



If insurance companies fear that an approaching hurricane, for example, will be more destructive and costly than anticipated, look to buy "live cats" or contracts for the additional coverage they charge if the catastrophe (cat) reaches a level of magnitude agreed. or of losses.





Hector Retamal / AFP / Getty Images
View of the damage caused by Hurricane Michael in Mexico Beach, Florida, October 13, 2018.

If the magnitude, or damage, is less than the "trigger", the issuers of these contracts keep the money of the buyers. The market for these live cats is activated when a storm like Michael is still in the water (a "live event") and can last until just before it hits the ground.



"Dead cats" are reinsurance contracts that insurance companies buy after the storm and before the final damage assessments. Again, the notion is that the destruction will be more than predicted and insurers want more capital to cover it.



In total, this market with vouchers for cats, live cats, dead cats and other securities linked to insurance covered about $ 15 billion in claims from the trio of Harvey, Irma and Maria last year, according to Evans.



The ILS trade has not been particularly active with Michael or Florence, another indication that insurers are well prepared with the money they already have on hand to cover the insured victims of these major storms.

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