Covering the Land of Lincoln

State Farm notifies reinsurers of $1.03bn gross Ian loss

The Bloomington, Illinois-based company is seen as a bellwether for the overall size of the homeowners loss, with significant skepticism around disclosures by the Florida specifics, given their track record of loss creep after Hurricane Irma.

(Re)insurers are still trying to decipher where the loss sits on a spectrum of roughly $40bn-$60bn, with major uncertainty driven by lower-than-expected claims counts and litigation and inflationary pressures.

State Farm had a 6.7% Florida homeowners market share in 2021 – significantly below its nationwide market share – but is understood to have been heavily underweight in the coastal areas, which were worst hit by Ian.

Scaling up a plausible market share of 3-4% would be equivalent to an industry-wide Florida homeowners’ loss of $26bn-$34bn.

Using its state-wide market share of 6.7% would scale the full homeowners loss to just $15bn, underscoring the dangers of assuming market share is evenly spread across the state.

The market is closely watching barometers like State Farm for signals around the overall quantum of the loss five weeks after landfall, by which time 80-90% of claims would typically have been filed.

Details of State Farm’s reinsurance purchase, including its attachment points, are not known, although it is understood to purchase a Florida-specific cover in addition to its national program.

Historically State Farm—owing to its scale and mutual status—has been prepared to run higher cat retentions than some of its rivals.

S&P Capital IQ data shows that State Farm’s largest commercial reinsurers in 2021 were Munich Re, Chubb Tempest Re, Swiss Re, Lloyd’s, Loews, Berkshire Hathaway and Markel Re.

A similar data point from a nationwide carrier on the homeowners loss came from Progressive, which disclosed estimated gross losses of $1.4bn from its property book, which is heavily reinsured.

Progressive’s 2021 market share was 4.4% state-wide, although it restricted its underwriting appetite in 2022, which may have prompted a decline. Extrapolating from a 4-4.4% market share would suggest a Florida-wide homeowners loss of $32bn-$35bn – somewhat above the read-across from State Farm.

A number of Florida specifics have disclosed gross loss numbers for Ian, but a track record of adverse developments from prior storms is causing the industry to reserve judgment.

Universal and UPC both estimated gross losses of around $1bn, while Heritage suggested its losses would be contained within its second reinsurance layer, which exhausts at $960mn.

State Farm declined to comment.

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