Harvey and Irma Shake Up 2017

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1 Perspective Harvey and Irma Shake Up 2017 Susanna Gotsch, Director, Industry Analyst, CCC Despite a number of severe convective storm events across the U.S. in the first eight months of this year, overall economic and insured losses were trending below losses from prior years. The storms that broke out May 8-11 across the Rockies, Plains and Midwest had caused the most damage with 20 percent of all Colorado s claims for the 1 st six months of the year hail losses from a single storm (see Figure 1). Figure 1: Weather Continues to Drive Volatility in Claim Counts Share of Overall Appraisal Volume with Hail or Water Primary Impact Claim Cnt - All Vehicle conditions Mid-Year 2017 Share o Losses with Hail/Water Primary Loss Category Colorado 9.0% 0.8% 9.2% 1.8% 4.3% 21.5% Wyoming 5.4% 9.8% 7.9% 0.6% 1.8% 15.6% Kansas 19.2% 20.9% 11.5% 4.1% 14.3% 11.3% Iowa 5.5% 12.4% 12.0% 1.3% 2.3% 10.0% New Mexico 9.0% 1.2% 7.6% 0.4% 3.0% 9.9% Missouri 22.1% 3.7% 9.9% 6.5% 10.3% 9.7% Texas 8.9% 4.5% 5.2% 1.7% 13.2% 8.7% Nebraska 14.6% 23.7% 21.1% 1.3% 15.3% 7.1% Minnesota 4.8% 1.4% 1.4% 0.2% 0.8% 6.7% Oklahoma 18.3% 24.0% 5.3% 8.3% 6.7% 5.9% South Carolina 2.9% 0.6% 7.3% 0.5% 2.3% 5.1% Tennessee 11.9% 1.1% 0.6% 0.3% 1.2% 5.1% Indiana 7.5% 8.1% 3.2% 1.1% 2.8% 4.1% South Dakota 14.0% 8.1% 38.2% 5.4% 3.1% 4.0% Alabama 2.1% 2.9% 1.2% 1.0% 0.4% 3.7% Wisconsin 1.7% 1.0% 1.4% 0.3% 0.9% 3.7% Arkansas 2.7% 1.5% 1.9% 6.7% 12.1% 3.1% Montana 1.1% 1.1% 27.6% 0.9% 22.5% 1.4% TOTAL 3.7% 1.3% 2.7% 0.8% 3.2% 3.1%

2 However, all of that changed with the kickoff of the 2017 Atlantic hurricane season. At approximately 10 pm CST on August 25, Hurricane Harvey made landfall near Rockport, Texas as a 130 mph Category 4 cyclone, bringing extreme wind gusts, storm surge, tornadoes, and 1000-year rainfall. 1 Rain fell across east-central Texas until August 31st, resulting in catastrophic flooding in eastern Texas and southwestern Louisiana. 2 Harvey broke a new record as the Tropical Cyclone with the maximum amount of rainfall recorded since inches at Cedar Bayou, Texas (see Figure 2). 3 Estimates of damages to date exceed Sandy, and maybe even Katrina. 58 counties in Texas total were declared federal disaster areas: Angelina, Aransas, Atascosa, Austin, Bastrop, Bee, Bexar, Brazoria, Brazos, Burleson, Caldwell, Calhoun, Cameron, Chambers, Colorado, Comal, DeWitt, Fayette, Fort Bend, Galveston, Goliad, Gonzales, Grimes, Guadalupe, Hardin, Harris, Jackson, Jasper, Jefferson, Jim Wells, Karnes, Kerr, Kleberg, Lavaca, Lee, Leon, Liberty, Live Oak, Madison, Matagorda, Montgomery, Newton, Nueces, Orange, Polk, Refugio, Sabine, San Jacinto, San Patricio, Trinity, Tyler, Victoria, Walker, Waller, Washington, Wharton, Willacy and Wilson. 4 Additionally five parishes in Louisiana were also named federal disaster areas: Beauregard, Calcasieu, Cameron, Jefferson Davis, and Vermillion in the southwest of the state. 5 Analysts have predicted as many as 500K to 1M vehicles throughout the affected areas in Texas and Louisiana may have been destroyed. According to Cox Automotive, vehicle ownership rates in Houston average about 1.8 vehicles per household, versus 1.3 in areas affected by Sandy, and 1.6 in areas impacted by Hurricane Katrina. 6 Subsequently many more vehicles were at risk. Figure 2: Harvey Losses to Be Among the Most Costly Rank Event Type of Flood Year Economic Loss ($B) Hurricane Katrina Hurricane Sandy Midwest Flooding Storm surge Storm surge Freshwater Hurricane Ike Storm surge Tropical Storm Allison, inland flood Freshwater Source; Harvey May Be Among the World s Costliest Recent Catastrophes. August 29, Source; Aon Benfield Analytics: Impact Forecasting. Hurricane Harvey becomes strongest US landfall since September 2017,

3 The vast majority of losses so far are from the Houston market, with a fair number also from Beaumont, Corpus Christi and San Antonio areas as well (see Figure 3). Data from Harvey claims in Louisiana and Texas submitted by CCC s customers as of mid-september suggest 70-80% of all vehicle claims will be total loss. Many of these vehicles will need to be replaced; a month after Superstorm Sandy, New York City-area auto sales jumped 49 percent. 7 Among the vehicles totaled to date from Harvey, a full 45 percent were light trucks, 65 percent of which were SUVs, and nearly 60 percent were from domestic automakers. Average adjusted vehicle value amount for all losses to date is just below $15,000. The sheer number of total loss vehicles, combined with the average loss of about $15K already suggests that the impact to overall total loss costs for the industry will be similar to what we saw with Sandy in 2012 (see Figure 4). Figure 3: Hurricane Harvey Loss Overview CCC Total Loss Valuations Total loss valuation count from Harvey as of 9/11/17 Total loss average adjusted vehicle value Amt by CBSA; overall average to date = $14,951 Figure 4: Size and Scale of Harvey Similar to Sandy Impact to National Industry Total Loss Costs CCC National Industry Total Loss Vehicle Valuation Amount Average Jan 01, 2003-Sept 11, 2017

4 And just as the industry was starting to get a good start on Harvey claims, Hurricane Irma began to rear its head in the Atlantic, gaining Category 3 status by August 31. By September 5, Irma had become a full-blown Category 5 hurricane, with wind speeds of 185 mph, making it one of the five strongest tropical cyclones ever recorded in the Atlantic Ocean. 8 After causing catastrophic damage in the northern Caribbean, Irma finally made landfall in the U.S. on September 10, becoming the first category 4 hurricane to hit Florida since Hurricane Charley in The Florida Keys were hit first, with storm surge flooding and winds causing the most extensive damage. Miami recorded winds of 100 mph, and its downtown business district was inundated with storm surge flooding. As the hurricane shifted further west, Marco Island and Naples experienced some flooding and wind damage, but the sheer size of the hurricane led to extensive damage across the state, with widespread power outages, and the large storm surge ever recorded hit Jacksonville, causing extensive flooding. 10 Irma then moved into Georgia and the Carolinas, bringing lots of rain, wind, flooding, and power outages. The full extent of the damage will take some time to assess, but early estimates peg Irma to become the costliest tropical cyclone in Florida since Wilma in October 2005 (see Figure 5). Figure 5: Hurricane Irma Devastation Extensive

5 A comparison of the vehicle mix in Florida potentially impacted reveals vehicles in the Naples, Miami and Key West CBSA s may have the highest total loss value. With the large scale evacuations that occurred however, the overall number of vehicles impacted will hopefully be less (see Figure 6). Volume of auto claims to date shows concentration in the Miami and Jacksonville areas (see Figure 7). Vehicle Values per CBSA in Florida Q Figure 6: Vehicle Values per CBSA in Florida Q Vehicle Owner CBSA Avg CCC Regional Value Amt Asian % of Claim Vol Domestic % of Claim Vol European % of Claim Vol FL,Miami-Fort Lauderdale-West Palm Beach-33 $16, % 27.6% 16.9% 36.0% FL,Tampa-St. Petersburg-Clearwater $13, % 35.7% 9.9% 39.8% FL,Orlando-Kissimmee-Sanford $13, % 32.0% 10.8% 37.2% FL,Jacksonville $13, % 37.5% 8.1% 41.7% FL,North Port-Sarasota-Bradenton $13, % 34.0% 10.9% 38.4% FL,Cape Coral-Fort Myers $13, % 34.7% 12.1% 34.5% FL,Lakeland-Winter Haven $13, % 41.7% 7.3% 43.4% FL,Palm Bay-Melbourne-Titusville $13, % 35.5% 7.3% 43.0% FL,Deltona-Daytona Beach-Ormond Beach-196 $12, % 40.3% 6.9% 38.7% FL,Pensacola-Ferry Pass-Brent $13, % 47.3% 5.4% 45.3% FL,Tallahassee $12, % 39.1% 9.1% 43.2% FL,Port St. Lucie $12, % 34.2% 12.9% 31.7% FL,Crestview-Fort Walton Beach-Destin $14, % 47.9% 4.6% 54.4% FL,Naples-Immokalee-Marco Island $17, % 33.0% 21.0% 42.0% FL,Ocala $12, % 43.4% 5.6% 43.7% FL,Gainesville $12, % 32.8% 7.0% 40.9% FL,Panama City $14, % 46.2% 7.0% 52.6% Unknown CBSA $11, % 55.0% 0.7% 50.7% FL,Homosassa Springs $13, % 57.7% 7.2% 54.6% FL,Punta Gorda $13, % 51.1% 8.5% 43.0% FL,Sebastian-Vero Beach $14, % 40.5% 10.8% 35.1% FL,Sebring $15, % 46.0% 4.0% 44.0% FL,The Villages $13, % 42.2% 6.7% 46.7% FL,Key West $16, % 37.5% 15.0% 37.5% FL,Lake City $11, % 50.0% 5.9% 35.3% FL,Palatka $10, % 53.6% 3.6% 42.9% FL,Arcadia $12, % 55.0% 5.0% 40.0% FL,Clewiston $11, % 46.7% 13.3% 40.0% FL,Wauchula $12, % 63.6% 0.0% 36.4% FL,Okeechobee $14, % 40.0% 0.0% 50.0% Light Truck % of Claim Vol Figure 7: Hurricane Irma Losses Beginning to Come In Hurricane Irma total loss valuations as of 9/18/17 by zip code 5K valuations run to date across the state of Florida and coastal areas of GA, NC, SC

6 Longer term impacts of both storms will be felt throughout the economy. Estimates from Moody s Analytics and others projected a relatively mild hit to the overall U.S. economy in the third quarter, with recovery in the fourth quarter of 2017 and into 2018 as rebuilding efforts began in earnest. 11 Numerous facilities for the oil and gas industry were impacted by Harvey 105 production platforms out of 737 in the Gulf were closed, as were three refineries, and two petrochemical plants. 12 An estimated onefifth of U.S. refining capacity was offline by August 30, leading to rising gas prices. 13 As of the September 12th Short Term Energy Outlook, the U.S. Energy Information Administration was unable to fully estimate the impact of both Hurricane Harvey and Irma to production, refining, pipeline and terminal and distribution infrastructure. 14 Gas prices however were still projected to remain below $3 per gallon through From an automotive claims perspective, analysis of repairable claims volume after prior major hurricanes show nominal impact (see Figure 8). Perhaps one of the biggest impacts will be felt in vehicle salvage values. After Superstorm Sandy, Insurance Auto Auctions reported an influx of salvage vehicles that attracted a strong contingent of foreign buyers. 16 With many of those vehicles sold overseas, the impact to recycled parts prices in the U.S. post-sandy was minimal. Whether we will see the same post-harvey remains to be seen, however, what s clear is 2017 will now close out the year as one of the worst years ever for catastrophic losses. Figure 8: Any Impact to Repairable Appraisal Costs? CCC National Industry Average Repairable Appraisal Amount Jan 01, 2003-Sep 8, 2017 The information and opinions in this publication are for general information only, are subject to change and are not intended to provide specific recommendations for any individual or entity. Although information contained herein has been obtained from sources believed to be reliable, CCC does not guarantee its accuracy and it may be incomplete or condensed. CCC is not liable for any typographical errors, incorrect data and/or any actions taken in reliance on the information and opinions contained in this publication. Note: Where CCC Information Services Inc. is cited as source, the data provided is an aggregation of industry data related to electronic appraisals communicated via CCC's electronic network or from total loss valuations processed by CCC. 1. AonBenfield Analytics: Impact Forecasting. Hurricane Harvey becomes strongest US landfall since September 2017, p. 1. 2, 3, 4, 5, 6, 9, 10, 12, 13, 15 Ibid 7 Peltz, James F. and Montero, David. Hurricane Harvey s wake of damaged cars and trucks. September 11, Aon Benfield, Impact Forecasting Cat Alert: Hurricane Irma (September 11 Update). Impact Forecasting impact.forecasting@aonbenfield.com, p Moody s Analytics. The Economic Impact of Hurricane Harvey. Mark Zandi, Chief Economist, webinar September 5, U.S. Energy Information Administration, Short Term Energy Outlook, September 12, Insurance Auto Auction Salvage Index Report, Six-Month Update. P. 19. To learn more about how CCC is transforming the claims experience poweringforward@cccis.com.