With over $1 billion in tornado losses hitting insurers, first-quarter 2008 twister loss totals have blown past comparable first-quarter loss totals for the last four years, A.M. Best reported yesterday.
In a research report, analysts from the Oldwick, N.J.-based rating agency noted that roughly $850 million in first-quarter insured catastrophe losses resulted from the "Super Tuesday Tornado Outbreak" in the mid-South on Feb. 5 and 6, and that about $340 million more came from a Mar. 14 tornado that struck in downtown Atlanta.
The report also said that while hurricanes and earthquakes tend to generate higher losses per event, on average, in each year since 1953 tornadoes and related weather events have caused nearly 57 percent of all U.S. insured catastrophe losses. In 2007, these perils generated 69 percent of the total insured cat losses.
Meanwhile, earlier this week meteorologists at Colorado State University's Department of Atmospheric Science in Fort Collins, Colo., said they expect this year's Atlantic basin tropical cyclone season will be well above average with a 69 percent chance that a major hurricane will hit the U.S. coastline.
The Best report, citing statistics from the Property Claims Services division of the Jersey City, N.J.-based Insurance Services Offices, listed eight thunderstorm/tornado events since April 2001 that have produced losses of more than $1 billion. "Losses of $1 billion and higher from single events are becoming more frequent, approaching losses from hurricanes," it said.
With tornado exposures rising, the study said some implications are:
o Smaller insurers, most notably single-state writers in tornado-prone states, are seeing profits compressed by several years of high back-to-back losses.
o Policyholders in tornado-prone regions may face rising premiums and deductibles as well as coverage interruptions in the future.
But exactly what regions are "tornado prone" is not exactly clear, information in the report suggests.
For example, the recent tornado that hit Atlanta is believed to be the first ever in the area, the report said.
In addition, while catastrophe models indicate that states typically associated with tornadoes–such as Texas, Oklahoma and Kansas–do in fact have the highest modeled occurrence rates, in terms of modeled loss dollars, New Jersey, Connecticut and Massachusetts top the list.
According to Best, high average property values in New Jersey explain why even though the modeled annual average occurrence rate of tornadoes for the Garden State is 2.6 per year, in terms of dollars, modeled average annual losses are $16.7 million per 1,000 square miles.
In contrast, Texas, with the highest modeled occurrence rate–29.8 per year–ranks 14th in modeled loss dollars with $5.4 million per 1,000 square miles, Best reported based on results of an RMS catastrophe model.
In the first quarter of 2008, tornado-affected states other than Georgia were Alabama, Tennessee, South Carolina, Missouri, Mississippi, Kentucky and Arkansas.
Commenting on the impact of catastrophe losses from tornadoes and related weather events of overall industry underwriting results, A.M. Best noted that they did little to dent industrywide combined ratios for most lines.
But one line of business–farm owners multiple peril–did get sucked into the powerful funnel of tornadoes in 2006, the report said, noting that while the industry's combined ratio was 92.4 for that year, farm owners had a combined ratio of 122.4 in 2006.
In addition to providing actual historical information on tornado losses and modeled loss estimates by state, the report includes analysis of Best ratings and their ability to predict insolvencies or impairments from catastrophe losses.
The report states that 51 insurers have failed since 1969, noting that 45 percent were rated vulnerable in the year of the cat-triggered impairments. Another 53 percent were not rated, and less than 2 percent had secure ratings before drowning in cat losses.
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