Hurricane Harvey, Texas, USA – First Impressions

Event Summary

“Harvey” made landfall as a category 4 hurricane between Port Aransas and Port O’Connor, Texas, at around 22:00 local time on Friday, 25 August 2017. It is the first major hurricane to make landfall in the U.S. since Hurricane Wilma in 2005. At landfall, “Harvey” packed maximum sustained wind speeds of 215 km/h according to the National Hurricane Center (NHC). Storm surge observations were lower than forecasted, with a surge of around 2.1 meters recorded at Port Lavaca, Texas. There are reports of at least three fatalities from “Harvey”. The storm captured a tremendous amount of moisture over the Gulf of Mexico. As a consequence, torrential rainfall occurred in vast parts of Southern Texas. Houston and neighbouring areas currently experience catastrophic flooding. “Harvey” is expected to move very slowly in the next 48 hours producing more heavy rain in the area.

Impact

The area is relatively small and sparsely populated and was affected by hurricane force winds as well as significant storm surge. Substantial damage has been reported mainly from seaside towns like Rockport. Severe flooding affects large parts of Southern Texas. The metropolitan area of Houston experiences unprecedented river levels and the whole situation is likely to become even worse. The impact from the flooding is yet to be determined. It is very likely that apart from residential some major commercial and industrial areas have been affected.

Assessment of Loss Potential

As this is an ongoing event, loss estimates are very difficult to make. Like Sandy in 2012, Harvey is mainly a water, not a wind event. Thus, the contribution from flooding to the total insured loss is highly uncertain. Flood losses to residential and commercial buildings are typically covered by policies from the National Flood Insurance Program (NFIP). Occasionally, such losses may “leak” into wind policies. Furthermore, business interruption is likely to contribute heavily to the overall losses as many businesses may be shut down for days or weeks.

Currently, information provided by the catastrophe model agencies indicate that Cat Bonds are unlikely to have been affected by the hurricane. It will take a few weeks until final loss estimates are available. Some Private ILS contracts are exposed to this event as well. With regard to Insurance Debt, the event is not expected to adversely impact the credit positions of the listed re/insurers we are invested in given that standalone, this will largely be an earnings event as opposed to capital erosion. For Insurance Equity, the greatest uncertainty remains with the extent of flooding damage and business interruption. This may erode 2017 earnings for some of the more exposed businesses.

Twelve Capital is currently assessing the loss potential using the latest impact reports.

Monday, 28 August 2017