Catastrophes


The cost of claims paid by homeowners insurers has been increasing at twice the rate of inflation, despite significant declines in recent years, according to the 2015 edition of a report from the Insurance Research Council (IRC).

Average homeowners claims payments per insured home have been increasing at an annualized rate of 5.0 percent since 1997, the IRC said, compared to the inflation average of approximately 2.4 percent.

Volatility—a major characteristic of homeowners insurance claims trends—is reflected in this chart:

IRCHomeownersClaimsSeverity

The average claim payment per insured home countrywide rose to $625 in 2011, up from $229 in 1997, before falling to $442 in 2013.

What’s behind the increased costs?

All of the increase in average costs per insured home was due to growth in average claim severity, which rose at an annualized rate of 7.8 percent over the 17-year period—more than triple the rate of inflation, the IRC said.

The rise in claim severity more than offset a 2.6 percent annualized decrease in claim frequency, the report found.

That said, claim frequency trends were found to be significantly more volatile than claim severity trends, especially for experience identified by insurance companies as related to catastrophe events.

In the words of Elizabeth Sprinkel, senior vice president of the IRC:

Insurance companies face significant challenges in responding effectively to rapid growth in claim severity and in managing the extreme volatility of claim trends everywhere.

In addition, consumers will find it increasingly important to consider steps to control their personal exposure to risk and to mitigate the damages and costs associated with severe weather events.”

IRC analyzed data from the Fast Track Monitoring Service representing approximately 50 percent of the U.S. homeowners insurance market for the study.

I.I.I. has useful facts and statistics on homeowners insurance here.

The presence or lack of catastrophes is a defining event when it comes to the financial state of the U.S. property/casualty insurance industry.

At the 2014 Natural Catastrophe Year in Review webinar hosted by Munich Re and the Insurance Information Institute (I.I.I.), we can see just how defining the influence of catastrophes can be.

U.S. property/casualty insurers had their second best year in 2014 since the financial crisis – 2013 was the best – according to estimates presented by I.I.I. president Dr. Robert Hartwig.

P/C industry net income after taxes (profits) are estimated at around $50 billion in 2014, after 2013 when net income rose by 82 percent to $63.8 billion on lower catastrophe losses and capital gains.

P/C profitability is subject to cyclicality and ordinary volatility, typically due to catastrophe activity, Hartwig noted.

In 2014, natural catastrophe losses in the United States totaled $15.3 billion, far below the 2000 to 2013 average annual loss of $29 billion, according to Carl Hedde, head of risk accumulation, Munich Re America.

Lower catastrophe losses helped p/c industry ROEs in 2013 and 2014, relative to 2011 and 2012, and helped the p/c industry finish 2014 in very strong financial shape, despite the impact of low interest rates on their investments, Dr. Hartwig noted.

PCROE_major_event

 

Overall industry capacity, as measured by policyholder surplus, is projected to have increased to $675 billion in 2014 – a record high.

The industry’s overall underwriting profit in 2014 is also estimated at $5.7 billion, on a combined ratio of 97.8.

Underwriting results in 2014 and 2013 were helped by generally modest catastrophe losses, a welcome respite from 2012 and 2011 when the industry felt the effects of Hurricane Sandy and record tornado losses, Dr. Hartwig noted.

Matthew Sturdevant of the Hartford Courant has a good round-up of the other webinar presentations here.

 

 

 

 

With frigid temperatures and snow expected to fall around the New York City area and other parts of the United States this week, it’s a good time to review how winter storms can impact catastrophe losses.

For insurers, winter storms are historically very expensive and the third-largest cause of catastrophe losses, behind only hurricanes and tornadoes, according to the I.I.I.

Despite below average catastrophe losses overall in 2014, insured losses from winter storms were significant. In fact winter storms in the U.S. and Japan accounted for two of the most costly insured catastrophe losses in 2014.

According to preliminary estimates from sigma, extreme winter storms in the U.S. at the beginning of 2014 caused insured losses of $1.7 billion, above the average full-year winter storm loss number of $1.1 billion of the previous 10 years.

And Aon Benfield’s 2015 Reinsurance Market Outlook notes that a multi-billion-dollar February winter weather insured loss event in Japan was one of the costliest ever for the country’s industry.

Sigma estimates the insured loss payout from that Japan winter storm at $2.5 billion and ranks it as the third costliest insured catastrophe loss of 2014.

What about the year prior?

Winter storms caused $1.9 billion in insured losses in 2013, up dramatically from $38 million in 2012, according to reports from Munich Re.

From 1994 to 2013 winter storms resulted in about $27 billion in insured catastrophe losses (in 2013 dollars), or more than $1 billion a year on average, according to Property Claim Services (PCS).

The good news is that NOAA’s U.S. Winter Outlook predicted early on that a repeat of last year’s winter of record cold and snow is unlikely.

In a release, NOAA’s Climate Prediction Center said:

Last year’s winter was exceptionally cold and snowy across most of the United States, east of the Rockies. A repeat of this extreme pattern is unlikely this year, although the Outlook does favor below-average temperatures in the south-central and southeastern states.”

December 26 marks the 10th anniversary of the Indonesian earthquake and tsunami which killed more than a quarter of a million people in Indonesia, Thailand, Sri Lanka, India and other countries surrounding the Indian Ocean.

A decade later, it’s perhaps surprising to read that weaknesses remain in the tsunami warning system across the region.

Yet maybe the best protection for residents living in tsunami-vulnerable areas is to learn natural tsunami warning signals and which areas have the highest flood risk.

A gallery of tsunami protection lessons posted by Allianz cites three key signs from GeoHazards International’s Tsunami Preparedness Guidebook:

-Strong earthquake shaking, particularly shaking lasting longer than 30 seconds;
-Withdrawal of the sea to unusually low levels; and
-Loud roar from the ocean, similar to a jet airplane, explosion or sudden, intense rainfall.

Identifying evacuation routes — creating hazard and evacuation maps showing the quickest and safest routes to higher ground or other safe areas — is also a key recommendation. Allianz notes that it is critical to involve government and emergency responders when developing these maps.

Education and awareness among residents in tsunami-prone areas then, can play as important a role as instrument-based tsunami warning systems.

In addition to high mortality risk, earthquakes and tsunamis can cause significant insured property damages.

While insured losses from earthquakes and tsunamis amounted to just $45 million in 2013, this was far below the record $54 billion recorded in 2011, according to facts and statistics compiled by the I.I.I.

On March 11, 2011 a devastating tsunami hit the coast of northeast Japan, triggered by a powerful earthquake approximately 80 miles offshore. The quake and tsunami caused $35.7 billion in insured damages, according to Swiss Re.

Also, early in 2011, a powerful earthquake struck Christchurch, New Zealand, resulting in $15.3 billion in insured losses.

The Japan and New Zealand quakes are among the 10 costliest world earthquakes and tsunamis, based on insured damages, according to Munich Re.

10MostCostlyQuakeTsunamiInsuredLosses

Natural catastrophes and man-made disasters cost insurers $34 billion in 2014, down 24 percent from $45 billion in 2013, according to just-released Swiss Re sigma preliminary estimates.

Of the $34 billion tab for insurers, some $29 billion was triggered by natural catastrophe events (compared with $37 billion in 2013), while man-made disasters generated the additional $5 billion in insured losses in 2014.

Despite total losses coming in at below annual averages, the United States still accounted for three of the most costly insured catastrophe losses for the year, with two thunderstorm events and one winter storm event causing just shy of $6 billion in insured losses (see chart below).

sigma_prel_cat_estimates_fig1

In mid-May, a spate of strong storms with large hail stones hit many parts of the U.S. over a five-day period resulting in insured losses of $2.9 billion – the highest of the year.

Extreme winter storms at the beginning of 2014 caused insured losses of $1.7 billion, above the average full-year winter storm loss number of $1.1 billion of the previous 10 years, sigma said.

Total economic losses from disaster events in 2014 reached $113 billion worldwide, according to sigma estimates, and around 11,000 people lost their lives in those events.

Ongoing events and revisions to estimates for previous ones may further change the 2014 loss outcomes, sigma noted, as this data includes updates to source data made by 28 November 2014 only.

More on global catastrophe losses from the I.I.I. here.

Winter storms caused $1.9 billion in insured losses in 2013, five times higher than the $38 million in damages seen in 2012, so it’s good to read via NOAA’s U.S. Winter Outlook that a repeat of last year’s winter of record cold and snow is unlikely.

In a release, NOAA’s Climate Prediction Center says:

Last year’s winter was exceptionally cold and snowy across most of the United States, east of the Rockies. A repeat of this extreme pattern is unlikely this year, although the Outlook does favor below-average temperatures in the south-central and southeastern states.”

While the South may experience a colder winter, the Outlook favors warmer-than-average temperatures in the western U.S., Alaska, Hawaii and New England, according to NOAA.

It’s important to note that for insurers, winter storms are historically very expensive and the third-largest cause of catastrophe losses, behind only hurricanes and tornadoes, according to the Insurance Information Institute (I.I.I.).

From 1994 to 2013, winter storms resulted in about $26.6 billion in insured losses, or $1.4 billion a year, on average, according to the Property Claim Services unit of ISO.

Outlook_map_temp2014F

Meanwhile, NOAA’s Winter Outlook also suggests that California’s record-setting drought will persist or intensify in large parts of the state this winter.

Mike Halpert, acting director of NOAA’s Climate Prediction Center, says:

Complete drought recovery in California this winter is highly unlikely. While we’re predicting at least a 2 in 3 chance that winter precipitation will be near or above normal throughout the state, with such widespread, extreme deficits, recovery will be slow.”

Natural catastrophe events in the United States accounted for three of the five most costly insured catastrophe losses in the first half of 2014, according to just-released Swiss Re sigma estimates.

In mid-May, a spate of severe storms and hail hit many parts of the U.S.  over a five-day period, generating insured losses of $2.6 billion. Harsh spring weather also triggered thunderstorms and tornadoes, some of which caused insured claims of $1.1 billion.

The Polar Vortex in the U.S. in January also led to a long period of heavy snowfall and very cold temperatures in the east and southern states such as Mississippi and Georgia, resulting in combined insured losses of $1.7 billion.

SwissReH114NatCats_web

These three events contributed $5.4 billion of the $19 billion in natural catastrophe-related insured losses covered by the global insurance industry in the first half of 2014, according to sigma estimates.

The $19 billion was 10 percent down from the $21 billion covered by insurers for natural catastrophe events in the first half of 2013. It was also below the average first-half year loss of the previous 10 years ($23 billion). Man-made disasters added $2 billion in insured losses in the first half of 2014, sigma reports.

The $21 billion in insured losses from disaster events in the first half of 2014 was 16 percent lower than the $25 billion generated in the first half of 2013, and lower than the average first-half year loss of the previous 10 years ($27 billion).

Total economic losses from natural catastrophes and man-made disasters reached $44 billion in the first half of 2014, according to sigma estimates.

More than 4,700 lives were lost as a result of natural catastrophes and man-made disasters in the first half of 2014.

As we head into August and the weekend, here are some of the stories from around the insurance blogosphere that piqued our interest:

Bertha: Tropical storm warnings have been issued for Puerto Rico, the U.S. and British Virgin Islands and other nearby islands as Tropical Storm Bertha – the second named storm of the 2014 Atlantic hurricane season – approaches the Caribbean. Early Friday, the National Hurricane Center (NHC) reports that Bertha’s winds are near 45 mph with no significant change in strength expected in the next few days. The latest 5-day forecast track for Bertha via the NHC has it staying well off the U.S. East Coast – let’s hope it stays that way.

Commercial Rate Increases Slow: Prices for commercial property/casualty insurance continued to slide in the second quarter of 2014, according to the latest quarterly survey from the Council of Insurance Agents & Brokers. On average, prices for small, medium and large accounts eased by a modest -0.5 percent during the second quarter, compared with 1.5 percent in the first quarter. Competition continued to drive the market, the Council said. Of note, pricing for property fell into negative territory with a -2.6 percent drop last quarter compared with flat pricing in the first quarter.

CAT Bond, ILS Market Dashboard: Looking for real-time metrics of the growing insurance-linked securities (ILS) and catastrophe bond market? Look no further than the just-launched Artemis Dashboard, an easy-to-use tool that allows you to access the data behind the transactions. You can view the current size of the market, issuance for the current year, top sponsors in the market as well as analyze outstanding cat bond and ILS market by key metrics such as the mix of perils, triggers, expected loss levels and pricing, and also data about the development of the market over time.

The I.I.I. has additional resources on these topics. Check out I.I.I. facts + statistics on hurricanes and catastrophe bonds.

Multiple outbreaks of severe weather led to a costly month for insurers in the United States in May, as thunderstorm events continued to dominate the catastrophe record.

According to the latest Global Catastrophe Recap report by Aon Benfield’s Impact Forecasting, no fewer than four stretches of severe weather affected the U.S. during the month of May.

Aggregate insured losses exceeded $2.2 billion and overall economic losses were at least $3.5 billion, with large hail and damaging winds the primary driver of the thunderstorm-related costs, Impact Forecasting reports.

The costliest stretch occurred during a five-day period (May 18-23) which saw damage incurred in parts of the Midwest, Plains, Rockies, Mid-Atlantic and the Northeast, including the major metropolitan areas of Chicago, IL and Denver, CO.

According to Impact Forecasting’s report, baseball-sized hail and straight-line winds gusting in excess of 70 mph (110 kph) were recorded that severely affected residential, commercial and auto interests. Total economic losses were estimated at $2.5 billion, with insurers reporting losses minimally at $1.5 billion.

Meanwhile, the combination of excessive heat, extreme drought conditions, low relative humidity and gusty winds led to dozens of wildfires across parts of the Texas Panhandle and Southern California, leaving two dead.

Overall fire costs/damages from the two states approached $100 million, according to Impact Forecasting.

In Texas the most significant fire was in Hutchinson Country, where at least 225 homes and 143 unoccupied structures were damaged or destroyed.

In California, at least 14 fires were ignited in the greater San Diego metropolitan region, including the Poinsettia Fire that destroyed eight homes, an 18-unit condominium complex, and two commercial buildings.

The report adds that through the end of May, tornado activity in the U.S. remained in the bottom 25th percentile of all years dating to the early 1950s.

Check out I.I.I. facts and statistics on thunderstorms.

If you haven’t read it already, the April edition of the Global Catastrophe Recap Report by Aon Benfield’s Impact Forecasting puts some numbers around the thunderstorm events that devastated parts of the United States last month.

According to the report, severe weather and flash flooding that caused extensive damage across more than 20 states in April will likely be the first billion-dollar economic loss event of 2014 attributed to convective thunderstorms.

At least 39 people were killed and 250 injured amid nearly 70 confirmed tornado touch-downs, which occurred across more than 20 states in the Plains, Mississippi Valley, Southeast, Midwest, and Mid-Atlantic.

Economic losses are set to exceed $1 billion, with insured losses minimally in the hundreds of millions of dollars, Impact Forecasting reports.

Another U.S. severe weather outbreak in April led to major damage in parts of the Plains, Midwest and the Mississippi Valley. The most significant damage was due to hail, as hailstones the size of softballs struck the Denton, Texas metro region.

Total economic losses were estimated at $950 million, with insured losses in excess of $650 million, according to the report.

In a press release Adama Podlaha, head of Impact Forecasting, says:

The recent outbreaks of tornadoes, large hail and damaging straight-line winds in the United States have emphasized the importance of historical data analysis for insurers and reinsurers when trying to forecast future losses.”

If you’re wondering how many convective thunderstorm events made the list of significant natural catastrophes in 2013, take a look at this slide from a presentation made by I.I.I. president Dr. Robert Hartwig at the National Tornado Summit in February.

It shows that thunderstorms accounted for six of the nine significant natural catastrophe events with $1 billion economic loss and/or 50 fatalities in 2013.

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