Capital Remains Strong for Insurers Affected by Recent Outbreak of Tornadoes
The outbreak of tornadoes across the country in recent months continues to have significant financial impact on companies within the insurance industry, specifically insurers writing business under the personal and commercial lines. As expected, the majority of the claim activity has been reported under personal lines.
According to A.M. Best, in spite of the large number of claims being reported from tornado-ravaged communities all across the country there are no reports of companies that have exhausted their reinsurance protection. In fact, A.M. Best’s outlook on the personal lines segment remains very stable.
The stability is primarily due to the automobile line, which represents a considerable portion of net written premium for the personal lines segment, with property only representing approximately 20%. Insurers’ have also recognized the importance of implementing programs to manage risk and improve in areas like underwriting and pricing.
Additionally, mutual companies tend to have a larger presence in the personal line segment, also contributing to the strong capital position. The smaller, geographic-specific writers were the hardest hit by the recent twisters. Many of these smaller insurers were not linked to larger companies and did not have ample reinsurance programs in place.
While the commercial lines segment has been impacted by the outbreak of tornadoes, the commercial carriers involved have been able to absorb the losses, with most losses related to business interruption.
Based on a filing with the Securities and Exchange Commission, the following are among the top insurance groups disclosing expected catastrophe losses related to the tornado outbreaks in the month of April:
- Allstate Corp ($1.4 Billion)
- Liberty Mutual Holding Co. Inc. ($350 Million – $450 Million)*
- Chubb Corp ($175 Million – $225 Million)**
Although, A.M. Best does not anticipate the losses associated with the recent tornado outbreaks to have any bearing on insurers’ rating, the 2011 hurricane season has just begun (May 15 in the Eastern Pacific and June 1 in the Atlantic). Unfortunately, the National Oceanic and Atmospheric Administration’s (NOAA) Climate Prediction Center expects to see an above-normal hurricane season this year in the Atlantic.
On a more optimistic note, the unpredictability of catastrophic losses occurring across the world and the pending threat of hurricanes, reinsurance carriers will surely see an increase in demand as companies seek assistance in risk management (sharing or transferring) and developing/promoting more adequate pricing structures.
* After-Tax Catastrophe Losses, ** Pre-Tax, Aggregate Catastrophe Losses
Gwen Portis is an Actuarial Analyst at Merlinos & Associates.
