Hurricane Idalia could cost insurers $9.36 billion

Hurricane Idalia made landfall in Florida as an "extremely dangerous" Category 3 storm on Wednesday

UBS expects Hurricane Idalia to result in insured losses of $9.36 billion based on preliminary estimates, the brokerage said in a note on Wednesday, as destructive winds and rain lashed coastal Florida.

People ride though the flooded street near the Steinhatchee marina after hurricane Idalia hit in Steinhatchee, Florida, on August 30, 2023. Idalia barreled into the northwest Florida coast as a powerful Category 3 hurricane on Wednesday morning, the US National Hurricane Center said. "Extremely dangerous Category 3 Hurricane #Idalia makes landfall in the Florida Big Bend," it posted on X, formerly known as Twitter, adding that Idalia was causing "catastrophic storm surge and damaging winds." (AFP)

Idalia made landfall in the state as an "extremely dangerous" Category 3 storm on Wednesday, after millions of residents evacuated or hunkered down in homes and shelters.

UBS estimates a 50% chance of losses of over $4.05 billion and a 10% likelihood of losses of $25.6 billion, based on Aug. 28 data. The wide range accounts for potential changes in the storm's intensity and path.

At about $10 billion, Idalia would cost insurers less than 10 of the costliest hurricanes to hit the United States.

UBS said it expects reinsurers to absorb a meaningful amount of the loss at the upper end of the current range.

Global insurers are facing a challenging 2023 as reinsurers hiked rates on key types of coverage by as much as 50% from July 1, blaming sharp losses from the Ukraine war and increasing wildfires and hurricanes hitting states such as California and Florida.

Reinsurers insure insurance companies, and have been raising rates in recent years because of steepening losses which industry players partly attribute to the impact of climate change. Higher reinsurance rates can affect the premiums that insurers charge their customers.

U.S. reinsurance rates for policies which previously faced claims for natural catastrophes rose 30%-50% during July renewals, while rates for similar policies in Florida rose 30%-40%, reinsurance broker Gallagher Re said in July.

Some insurance firms including Farmers Insurance, Bankers Insurance and Lexington Insurance, an unit of AIG, have reportedly pulled out of Florida because of the risk of heavy losses.

As a result, the state has ended up with a market populated by a large number of very small, very thinly capitalized insurers, insurance experts have said.

The insurers did not immediately respond to Reuters requests for comment.