Back in 1992 I was working at a large Reinsurance Company in their property underwriting division and was in the middle of an MBA program that would lead to a new position in the company. In my personal life my wife and I were expecting our first child so both professionally and personally things were looking good!
One of the things that I was trying to do at this company was to collect exposure accumulation information so that we didn't have a surprise like we did after Hurricane Hugo – this was my first venture into building a catastrophe oriented tool. My work was progressing to the point where I recognized that Florida could be a real concern – while many of our underwriters had their doubts about the need for controlling our coastal exposures.
On Sunday, the day before Hurricane Andrew made landfall, I was on my way to a week long MBA offsite. That night I checked into the hotel and I immediately started to watch TV for updates on the pending hurricane landfall. It was at this time that my wife called to inform me that our child would be a boy and asked me what names we should consider. With so much on my mind work-wise we agreed to think about it later. With all that was going on - new baby boy, hurricane, and MBA - I couldn't sleep and ended up watching television all night long looking for more information on Hurricane Andrew.
By early morning the storm was intensifying yet observations showed that the wind damages seemed to be less than anticipated. After landfall, the news report images appeared to show little damage and instead the media focused their attention on how well Miami held up. Overall, the news gave me and many others the impression that the storm had little impact on the state. The head of my company called me sounding relieved and seeking my confirmation that the loss would be minimal. I kept my fingers crossed, acknowledged that I remained nervous based on my accumulation studies, and would keep a watch on the situation.
As the morning wore on the news media continued to say that they had no reports of major damage….that is until the first helicopters returned images of entire communities that had been destroyed. Most forms of communication were compromised by the storm and as such no one had a clue to what was really happening. As I watched television it became apparent that the insurance industry was facing an event that would be multiples of Hugo. It was then that my wife called to see if I'd thought of any names yet, and the only one on my mind was Andrew! That's the one we ended up going with (he's pictured) and most people think he's a junior after me. However, I can assure you that isn't the reason, it's due to the hurricane!
I left the MBA offsite a few days early to get back to the office and review the significant amount of claims that were coming through. Calls were coming in by the dozens, more than I expected, and on accounts that we did not expect to hear from. It seemed as though every account had a schedule with at least one location being in south Florida with the underwriters not being aware on many of them. On the single risk side, the reinsurer thought it best to play in the excess layers while hoping to avoid most losses. Unfortunately Andrew broke through all of these excess positions and each notice of loss eventually turned into a real loss by the end of the year. Our losses wiped out decades of profitability.
My company was heavy into long tail business and had much of its assets tied up in real estate. During the early nineties the European real estate market collapsed eroding much of the company's surplus. In late October of 1992 the CEO called for a company-wide town hall. Unfortunately his meeting with the parent organization had gone poorly. Due to the many pre-existing financial problems and the impact of Hurricane Andrew the company had to reconsider its position in the market. It was leaving the US property market to focus on long tail casualty and life. Although Andrew was not the only reason for the company's failures it was the straw that broke the insurers back and the easiest to avoid in the future by no longer writing property business. Many of us argued that the market would tighten significantly – which it did, and that property would make tremendous amounts of profit over the next few years, which it also did. Nevertheless, the decision was final and we shut our doors early the next year.
Category: Climate/natural disasters: Climate change, Disaster risk, Floods/storms
Location: Florida, United States