The third quarter of 2004 is the insurance industry's worst ever, with property and casualty insurers' facing a record $21.3 billion in insured property loss claims from eight catastrophes, according to preliminary estimates by Property Claim Services.
This figure compares with insured losses of $3.7 billion in the third quarter of 2003 and $715 million in the third quarter of 2002. The industry's previous worst third-quarter property losses were $19.15 billion in 2001, which included $18.8 billion from the Sept. 11 terrorist attacks.
Catastrophe losses for the first nine months of 2004 now stand at $24.7 billion, the second worst nine-month period for catastrophe losses since 2001, which cost insurers $26.1 billion. The industry's insured losses for the first nine months of last year were $10.2 billion.
Of the eight events that affected 21 states and Puerto Rico during July, August, and September of this year, four were hurricanes — Charley, Frances, Ivan, and Jeanne — which, together, accounted for an estimated $20.5 billion of the third quarter's losses. The rest were from Tropical Storm Gaston and three wind and thunderstorm events.
Florida was hit the hardest and suffered $17.5 billion in insured losses on nearly 1.7 million claims. Alabama's damages were the next most severe, at $1.2 billion, followed by Georgia ($630 million), Pennsylvania ($445 million), and North Carolina ($255 million).
The high losses from the quick succession of hurricanes illustrate the need for insurers to plan for multiple-event seasons to effectively manage hurricane risk, according to AIR Worldwide, a risk modeling company. Insurers should expect to see four hurricanes make landfall in the United States approximately once every 12 years, AIR modelers contend. The expected frequency of four loss-producing hurricanes in Florida is about once every 150 years, still within the range to which most insurance companies manage their catastrophe risk. As far as property losses are concerned, insurers should expect to see similar aggregate losses in a single season about once every 13 years for the U.S. and about once every 24 years for Florida.
"For the past 15 years, a single event has driven most of the annual hurricane losses," said Uday Virkud, AIR senior vice president. "However, this past season, which is not unusual when compared with long-term historical experience, demonstrates how important it is for companies to recognize the likelihood of multiple-event seasons when analyzing catastrophe risk."
Although the 2004 hurricane season was the most active since 1986, when six hurricanes made landfall in the United States, since 1900 six years have seen at least four hurricanes striking the U.S. coastline. This year is one of eight in the last 100 in which losses would exceed $20 billion, adjusting for current property densities and values, according to AIR's analysis.
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