2006 A Record For Tornado Losses

Tornado and related weather events were particularly costly in 2006, resulting in more than $8 billion in insured losses–the worst year on record, according to A.M. Best.

Tornadoes and related weather events have caused approximately 56 percent of all insured catastrophe losses in the United States in any given year, while hurricanes and earthquakes, on average, tend to generate higher losses per event, according to a special report by A.M. Best Co.

And in a surprising note, New Jersey tops the list of states with the highest average expected insured losses per 1,000 square miles from tornado and related weather events.

But while hurricanes contain the elements of both covered wind peril and excluded flood peril, all of tornado losses are covered perils, noted Florida Insurance Commissioner Kevin McCarty in testimony earlier this year before Congress.

Following 2006 record losses, 2007 is proving just as costly in terms of tornadoes with 334 events, up 65 percent from the first quarter of last year–and with the twister in Kansas last week incurring new losses.

While tornadoes have the potential to reach $10 billion in a 100-year event, or an aggregate annual 100-year loss of at least $20 billion, they have a limited solvency impact, according to A.M. Best.

Of the 51 insurers in the agency's property-casualty impairment study deemed to have failed due to catastrophe losses, only three companies had losses triggered by tornadoes and related severe weather.

“Each of those impaired companies was a small insurer with a heavy concentration of risk in a limited geographic region,” the report noted.