Hurricanes to cause more pain for pandemic-hit insurers

A downed tree uprooted by Hurricane Florence lies next to homes in New Bern, North Carolina. As hurricane season started, most of the US state’s coastal areas are grappling with concerns about equipment and resources. (AP/File)
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Updated 02 June 2020

Hurricanes to cause more pain for pandemic-hit insurers

  • Hefty damage from hurricanes is expected to push up property rates by as much as 50%

WASHINGTON: The official start of the Atlantic hurricane season on Monday could signal more steep losses for insurers and reinsurers, already battered by the impact of the coronavirus pandemic on their underwriting and investment positions.

However, recent years of hefty damage from hurricanes and high claims due to the pandemic mean property rates at a key June 1 renewal date are expected to get pushed up by as much as 50 percent, providing an income boost.

Meteorologists are forecasting that the Atlantic 2020 hurricane season, which officially finishes on Nov. 30, will be above average.

“What we’ve seen over the past couple of years is an increase of (storm) losses from a frequency and severity perspective,” said Susan Fallon, Global Head of Property at Zurich Insurance Group.

“There’s an expectation we will see increased rates.”

Lloyd’s of London this month forecast more than $100 billion in underwriting losses from the pandemic in 2020, with those losses coming before the hurricane season even gets going.

The specialist insurance market said the pandemic losses were similar in size to the loss year of 2005 — when Hurricane Katrina hit New Orleans — and 2017 — when Hurricanes Harvey, Irma and Maria hit Florida, Puerto Rico and Texas.

Those hurricane years were exceptional but this year could also be costly.

The National Oceanic and Atmospheric Administration (NOAA) sees 13-19 named storms of which 6-10 could become hurricanes.

The average hurricane season produces 12 named storms and six hurricanes, three of which are major.

The exact impact of hurricanes is always difficult to determine as many do not make landfall.

But the average for insured losses from natural catastrophes globally is $75 billion over the past 10 years, according to reinsurer Swiss Re.

Climate change has led to greater flood damage from hurricanes, and increased building of expensive properties in states such as Florida has also added to the size of claims, industry sources say.

KBW analysts said in a note that reinsurance rates in Florida could rise 25-45 percent on June 1, with the underwriting and investment losses from COVID-19 “heightening risk sensitivities” and contributing to the rise.

Reinsurers share the burden of large losses like hurricanes in return for part of the premium. Insurers typically pass at least part of the reinsurance rates they pay onto policyholders.

“We’ve seen rates for Florida renewals accelerate quite a bit,” said Chris Grimes, a director at Fitch Ratings. Rate increases were in the 20-40 percent range, or up to 50 percent for some insurers, Grimes said.

Analysts at JMP Securities expect rate rises of 25-35 percent.

The rate rises could sweeten the pill for insurers and reinsurers, which also face $100 billion in investment losses this year, according to Lloyd’s’ estimates.

But the impact of the pandemic is also expected to exacerbate hurricane losses.

Medical facilities and other businesses might take more precautions in advance of a storm, adding to the cost of claims, Karen Clark, co-founder and CEO of catastrophe modeling firm Karen Clark & Company, said.

Reinsurer Munich Re highlighted added risks from the pandemic to response and recovery, supply chains and coastal evacuations.

The Bahamas would be particularly vulnerable, Munich Re said, as it continues to deal with last year’s Hurricane Dorian, while the pandemic has also hit its tourist industry.

Iranian oil in perfect storm of storage shortage, low demand, sanctions

Updated 26 min 27 sec ago

Iranian oil in perfect storm of storage shortage, low demand, sanctions

  • Coronavirus, US economic action sees inventories reach bursting point

LONDON: Iranian oil production has reached its lowest point in almost four decades, according to industry experts, with the country’s storage facilities fast approaching full capacity.

The news comes amid a dip in Iran’s oil exports due to a crash in global demand, and in a period when its refineries have been hampered as a result of the coronavirus outbreak.

With over 11,000 confirmed fatalities, Iran has suffered the worst coronavirus outbreak in the Middle East, affecting all areas of industry. 

This has created a perfect storm for the country’s vital oil sector, with what little selling ability it has further disrupted by sanctions imposed by the US in 2018 following Washington’s withdrawal from the Iran nuclear deal.

Iran’s total liquid production dropped from 3.1 million barrels per day (bpd) in March this year to 3 million bpd in June, according to FGE Energy, which predicts that the figure will drop by an additional 100,000 bpd in July.

Crude production was as low as 1.9 million bpd in June, the lowest since the beginning of the Iran-Iraq war in 1981.

Exports also fell, with estimates varying depending on source — 100,000 bpd in May according to market intelligence firm Kpler, and around 210,000 bpd according to FGE — well under 10 percent of the 2.5 million bpd Iran exported in April 2018.

Iran’s onshore crude stocks, meanwhile, hit 63 million barrels in June, having been just 15 million barrels in January, according to FGE.

Kpler said Iran averaged 66 million barrels in storage throughout June, meaning that around 85 percent of the country’s total onshore storage capacity was full.

“However, it will technically not be possible to fill tanks to 100 percent, given technical constraints at storage tanks and potential infrastructure bottlenecks,” Homayoun Falakshahi, a senior analyst at Kpler, told Reuters.

Offshore the story is much the same, with options running out fast. Iran has 54 crude oil tankers, according to valuations specialist VesselsValue, and is thought to be using around 30 ships, mainly supertankers with a maximum capacity of 2 million barrels of oil each, to store over 50 million barrels of crude and condensate.

“The exact number of Iranian vessels on floating storage is a bit of a black box as they have all turned off their AIS (tracking transponder) signals,” said a spokesman for shipping group NORDEN.

“Storage is expected to continue as we do not see these vessels being able to trade anytime soon.”

The Iranian-American Harvard analyst Dr. Majid Rafizadeh told Arab News: “Thanks to the re-imposition of sanctions against Tehran by the Trump administration, the regime seems to have suffered a significant loss of revenue.
“Iran’s oil revenues and exports have been steadily declining since President Trump pulled out of the Joint Comprehensive Plan of Action and adopted a policy of ‘maximum pressure.’

“Consequently, the flow of funds to the Iranian regime has been cut off, thwarting the Iranian leaders’ efforts to fund and sponsor Bashar Assad’s regime in Syria and various terror groups.”