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Ida could hit $30bn loss mark, Louisiana’s ‘largest insured loss event’ to date: Donelon

Jim Donelon insurance commissioner.jpg

Louisiana Insurance Commissioner Jim Donelon said that losses from Hurricane Ida could reach $30bn, positioning the storm to become “the largest loss event” in Louisiana’s history, exceeding losses from the deadly Hurricane Katrina in 2005.

In an interview with Inside P&C, Donelon noted that industry cat modelers predicted that losses from Ida could end up between $15bn and $40bn, “and I am seeing that all indications are that will be the case”, he said.

Last week, the insurance commissioner sought the takeover of two failing regional insurance companies that became insolvent because of Ida’s heavy burden. The two companies put into receivership were State National Fire Insurance Company of Baton Rouge and Access Home Insurance Company of New Orleans.

“These carriers are in a very financially unstable position, so it was necessary,” Donelon said.

He went on to say that both insurance companies agreed to be placed into receivership, with the goal of being able to transition their policies to a “soft landing” with other carriers doing business in Louisiana.

“Now we are hopeful that will be the outcome,” the commissioner added.

Ida aside, the 2020 storm season was the most active ever in Louisiana, with three hurricanes and two tropical storms striking the state.

Insured losses in Louisiana from the 2020 hurricane season have risen to $10.6bn, according to the latest data from the Louisiana Department of Insurance (LDI). The loss data relates to claims paid or reserved in relation to hurricanes Laura, Delta and Zeta, which tore through the southern state last fall.

The latest claims tally marks an increase of $600mn from the last data set LDI released in August, which pegged losses at $10bn.

Donelon also said that Louisiana is monitoring another 10 to 12 small regional companies for insolvency, noting, however, that since Katrina, the state has attracted two dozen small regional players, new to the market.

“[These are] small regional companies that are in competition with each other, even in the aftermath of Laura and Ida,” he said.

“We are confident that we’ll be able to not only retain those, but attract new regional carriers, [which are] insured up to their chin through the international reinsurance marketplace, to replace those who have become insolvent or exited our market.”

Citizens ‘fully covered’ for Ida and Laura

On the topic of Louisiana Citizens Property Insurance, Donelon said that the state-backed carrier does not need to acquire additional reinsurance to endure the impact of major losses from Ida and Laura.

“Citizens was fully covered,” Donelon said. “They only reached 80% of their available reinsurance in both events, Laura and Ida, so they were more than reinsured adequately.”

Louisiana Citizens booked $439mn in Hurricane Ida losses by September 30, implying the disaster will nearly wipe out five of its six traditional reinsurance layers and two cat bond tranches, according to Q3 financials updated on its website this month.

Donelon noted that Ida was a much bigger loss event for Citizens than Laura, because its exposure is “disproportionately concentrated” in the Orleans and Jefferson areas.

Louisiana Citizens recently announced that it increased the amount of commercial property insurance coverage available, aiming to guarantee that businesses can buy enough coverage through the state-backed carrier, if they cannot get coverage in the private market.

The last time the trade limits were increased by the state-sponsored insurer of last resort was in 2013.

Commissioner Donelon added that carriers are not allowed under actuarial guidelines to recoup their losses in premium increases, but he noted that insurers can pass through the cost of reinsurance to policyholders, which could turn into premium rises.

“We use the international reinsurance marketplace to spread our significant coastal exposure around the world, not just across our state, and the cost of reinsurance this year was significantly impacted by events around the world,” he said.

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