NU Online News Service, Sept. 27, 3:21 p.m. EDT

The increasing frequency of low severity, rare weather events is impacting underwriting results for property and casualty insurers in the U.S., and the phenomenon is credit negative for insurers, Moody's said in its Weekly Credit Report.

Moody's noted there has not been a severe natural catastrophe in the U.S. in 2009 and so far in 2010. "However," Moody's added, "the underwriting margins of many industry players, particularly those with property coverage concentrations, have suffered significant aggregate losses because of a sharp upswing in the frequency of low-severity perils including tornados, winter storms, hail and covered floods."

First-half catastrophe losses this year in the U.S. totaled $7.9 billion, Moody's said, citing ISO Property Claims Service data. For the 2009 first half, losses were $7.7 billion. These losses outpace the first-half average over the last 10 years of $6 billion, according to Moody's.

This year has seen flooding in Tennessee, hail storms in Oklahoma and widespread tornado activity, Moody's said. Of particular note, Moody's pointed to the increasing volatility and unpredictability of 2010 weather events. Moody's cited tornados in low-risk areas such as Southern California and New York City as examples.

While the losses on each of these low-severity events are insignificant, Moody's said the frequency is taking its toll on insurers.

"In the past, losses from non-hurricane weather-related events were less volatile, allowing insurers to charge sufficient premium to offset exposure to these perils," Moody's said. "But this recent uptick in volatility is problematic for insurers given the thin underwriting margins in what is largely a commodity business, particularly in the homeowners segment."

Insurers are also bearing the brunt of these losses on their own, Moody's noted. "Although insurers typically purchase reinsurance protection for hurricanes and earthquakes, these small-scale weather-related losses tend not to trigger reinsurance protections."

Moody's said rate increases sought by homeowners insurers should help improve profitability.

Special Reports /

High Frequency, Low Severity U.S. Weather Events Chipping Away At Insurers

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