Tag Archives: Sandy

P/C Industry Profitability Surges Amid Lower Cat Losses

The property/casualty insurance industry is on track for what will assuredly be its best year in the post-crisis era, after a sharp improvement in profitability in the first nine months of 2013, according to I.I.I. president Dr. Robert Hartwig.

In his commentary on the industry’s 2013 – First Nine Month Results, Dr. Hartwig notes that the industry’s strong performance was propelled chiefly by lower catastrophe losses, favorable prior year reserve development and growth in premiums.

The effect: the industry combined ratio fell to 95.8 in the first nine months of 2013 from 100.7 in the first nine months of 2012—leading to an underwriting profit of $10.5 billion—much needed in an era of persistent, ultra-low interest rates.

As a result, the industry’s overall net income after taxes (profits) surged by 54.7 percent through the first three quarters of 2013 to $43.0 billion from $27.8 billion in the year earlier period, pushing the industry’s return on average surplus up to 9.5 percent, up from 6.5 percent in the first nine months of 2012.

Dr. Hartwig comments:

Looking ahead, there is no question that 2013 fourth-quarter performance for the property/casualty insurance industry will be far superior to 2012. This is because last year’s fourth quarter includes the impacts of Hurricane Sandy, which resulted in $18.8 billion in insured catastrophe losses. No event in the fourth quarter of 2013 comes remotely close. In addition, property/casualty insurers will benefit from a strong performance in financial markets during the final quarter of the year.†

This year’s nine-month catastrophe losses were far below the 10-year average for the first nine months of $20.0 billion, according to ISO’s PCS unit. Direct insured losses from catastrophes through the first nine months of 2013 fell by $4.5 billion to $11.7 billion from $16.2 billion in the year earlier period.

Meanwhile, net written premiums were up 4.2 percent during the nine-month period from 4.1 percent for the year earlier reading. This marked the fourteenth consecutive quarter of growth and the longest continuous period of growth in nearly a decade, Dr. Hartwig noted.

The results were released by ISO and the Property Casualty Insurers Association of America (PCIAA).

AIMU Calls on Marine Insurers to Leverage Cat Modeling

The insurance marketplace as a whole could benefit greatly if marine insurers would incorporate more catastrophe modeling in their pricing and profiling of risk accumulations, according to American Institute of Marine Underwriters (AIMU) chairman Roger F. Ablett.

Speaking at the 115th AIMU annual meeting held in New York City late last week, Ablett noted that in the aftermath of Superstorm Sandy there had been a call for marine underwriters to make greater use of cat modeling in their risk analysis.

Despite the shortcomings in modeling hull and cargo risks which are transient, as opposed to property risks which are static, Ablett told the gathering:

It is well known that the marketplace as a whole could benefit greatly if marine insurers would incorporate more modeling schemes in their pricing and the profiling of accumulations.†

Some 15 percent of Superstorm Sandy’s total estimated insured loss of $19 billion was marine-related.

The marine loss of $3 billion exceeded the total amount of U.S. marine insurance premiums collected last year, Ablett said.

The two marine lines most affected by Sandy were cargo and yachts.

Cargo recorded a combined ratio of 131 percent in 2012, up from 88 percent in 2011.

The combined ratio for yachts was 135 percent in 2012, some 40 points higher than the prior year.

AIMU’s annual survey of its members also reported direct written premiums of $2.2 billion in 2012, with a combined ratio of 115 percent.

That represents a slight drop in premiums from 2011, while the combined ratio deteriorated from just over 90 percent.

New York MTA in Storm Surge Catastrophe Bond First

Superstorm Sandy highlighted the enormous risk of storm surge along the Gulf and Atlantic coasts, so we’re interested to read that the captive insurer of the New York Mass Transit Authority (MTA) has accessed the capital markets to cover it in the event of storm surge resulting from a named storm.

Artemis blog reports that this is the first time in the history of the catastrophe bond market that a transaction has provided cover just for storm surge:

Hurricane and tropical storm induced storm surge is included in many U.S. wind cat bonds, so it is not particularly diversifying, but it has never been structured into a cat bond as the sole peril in this way and is an interesting addition to the market that could spur more issuance of storm surge cat bonds. It’s another sign of the increasing maturity and flexibility in the cat bond market, as well as the increasing appetite investors are showing for catastrophe risk.†

Artemis adds that the sponsor, the captive insurer of the New York Mass Transit Authority (MTA), has significant exposure to storm surge, as evidenced by the losses it faced from last year’s hurricane Sandy:

The MTA suffered a loss in the region of $5 billion from the storm, predominantly from surge due to flooded transit tunnels and subways, so it is encouraging to see it turn to the catastrophe bond market for a new source of reinsurance protection.†

The $125 million catastrophe bond will be issued by First Mutual Transportation Assurance Co. (FMTAC), the MTA’s captive insurer and sold via MetroCat Re Ltd, a Bermuda domiciled special purpose insurer.

Artemis says the deal offers protection against named storms that generate a storm surge event index that equals or exceeds 8.5 feet for Area A or 15.5 feet for Area B. Area A includes tidal gauges located in The Battery, Sandy Hook and Rockaway Inlet, while Area B includes tidal gauges in East Creak and Kings Point.

Business Insurance has more on this story.

Check out I.I.I. facts and statistics on catastrophe bonds.

2012 Nat Cat Losses Above Average

Hurricane Sandy is the second costliest storm in insurance history after Hurricane Katrina, according to latest estimates from Munich Re.

In its 2012 Natural Catastrophe Year in Review Webinar hosted in partnership with the Insurance Information Institute (I.I.I.), Munich Re noted that Hurricane Sandy, which made landfall in New Jersey, became the worst storm to hit the northeastern U.S. since the Great New England Hurricane of 1938, causing insured losses in excess of $25 billion.

This estimate would place Sandy second only to Hurricane Katrina which caused insured losses of $62 billion in 2005 dollars, according to Munich Re.

The webinar noted that insured losses due to natural catastrophes in the U.S. in 2012 totaled $57.9 billion – far above the 2000 to 2011 average loss of $27 billion (in 2012 dollars).

Insured losses from natural catastrophes in the U.S. in 2012 were also the second highest on record after 2005, and 2012 was also the third costliest year for the insurance industry worldwide (after 2011 and 2005).

Natural catastrophes caused $160 billion in overall losses and $65 billion in insured losses worldwide in 2012, Munich Re said. The U.S. accounted for some 69 percent of overall losses and 90 percent of insured losses, well above the respective long-term averages of 32 percent and 57 percent.

Check out articles by the Wall Street Journal and PC360Â  for more on this story.

See I.I.I. president Dr. Robert Hartwig’s presentation on the financial strength of the insurance industry here.

2012 Cat Losses Dominated By U.S. Weather Events

Worldwide economic losses from natural catastrophes and man-made disasters will likely reach at least $140 billion in 2012, of which insurers will pay close to half.

According to Swiss Re sigma preliminary estimates, insured losses arising from the catastrophic events of 2012 – such as Hurricane Sandy and drought in the U.S. – are set to reach roughly $65 billion. Natural catastrophes alone will lead to over 11,000 lives lost and roughly $60 billion in insured claims.

The tally is moderate compared to 2011, which saw historic insured losses of over $120 billion due to record earthquakes and flooding, but is above the average of the last 10 years, Swiss Re says.

After two years of historic losses arising from record earthquakes and floods in Asia Pacific and South America, 2012 is dominated by large, weather-related losses in the U.S. The top five insured loss events are also all in the U.S.

Swiss Re notes that Hurricane Sandy is the largest Atlantic hurricane on record in terms of wind span. This record storm surge caused widespread flooding and damage to a densely populated area on the East coast of the U.S. It also led to the worst power outage caused by a natural catastrophe in U.S. history.

Estimated insured losses from Sandy are put at between $20 and $25 billion. However, Swiss Re cautions that the total insured loss tally is subject to a high degree of uncertainty and it is still too soon to gauge the final overall damage.

Extremely dry weather conditions and limited snowfall in the U.S. also led to one of the worst droughts in recent decades, affecting more than half of the country. Swiss Re says drought-related agricultural losses are likely to reach around $11 billion, including pay-outs from federal assistance programs.

Check out I.I.I. facts and statistics on global catastrophes here.

Concerns on Flood Insurance Post-Sandy

Many homes that sustained flood damage from Sandy did not have flood insurance, according to joint research by the Wharton Risk Center and Resources for the Future.

For example, along the entire New York coast, take up-rates are lower than 30 percent in most ZIP codes.

Take-up rates along the New Jersey coast seem to be higher than New York, particularly in Manhattan.

Residential flood insurance in the U.S. is primarily provided through the federally-run National Flood Insurance Program (NFIP).

The analysis shows that the state of New York has about 169,000 NFIP policies-in-force, representing $42 billion in coverage.

New Jersey is the fifth-ranked state by approximate number of NFIP policies-in-force, with about 236,000 policies-in-force, representing $55 billion in coverage.

The Wharton brief notes:

As is clear from the figures, there are higher take-up rates in coastal communities, most likely because residents are aware of the higher risk they face. That said, even in heavily flooded areas, they are still fairly low.

Given the highly populated areas where Sandy hit, this disaster is likely to cost the NFIP billions of dollars, while it’s already running a $17 billion deficit.†

A recent article by the New York Times suggested that Hurricane Sandy will rank as the nation’s second-worst storm for claims paid out by the NFIP. Hurricane Katrina triggered nearly $18 billion in claim payments by the NFIP.

Interestingly, only a handful of states account for the vast majority of policies and coverage in the NFIP. Wharton says the top five states by approximate number of policies-in-force are:

1. Florida: 2.06 million policies ($475 billion in coverage)
2. Texas: 650,000 policies ($162 billion)
3. Louisiana: 484,000 ($112 billion)
4. California: 260,000 ($68 billion)
5. New Jersey: 236,000 ($55 billion)

Earlier this summer a report by CoreLogic revealed that over four million homes in the U.S. along the Atlantic and Gulf coasts are at risk of hurricane-driven storm-surge damage, with more than $700 billion in total property exposure.

Check out I.I.I. information on flood insurance.

Post-Sandy: What You Need to Know

As a resident of Essex County, New Jersey, it’s been a surreal week. Superstorm Sandy caused damage in U.S. East coast communities from Virginia to Maine, but especially in the New York/New Jersey region.

Latest estimates from catastrophe modeler Eqecat put insured losses at up to $20 billion and total economic damage at up to $50 billion.

Eqecat said a number of factors influenced its revised estimates including large electric and utility losses that will trigger significantly more insured losses (business interruption) than were expected.

As my neighbors deal with downed trees, damaged homes, lack of power/heat and food spoilage, I’ve been asked a few questions on insurance coverage.

Here are  my top 3, with reference to the Insurance Information Institute’s (I.I.I.) Hurricane Sandy FAQs:

1. A tree fell on my house or garage, can I file a claim?

The short answer is yes. If a tree hit your home, that damage is covered under your homeowners insurance policy. If your tree fell on your neighbor’s home or garage, his or her insurer would pay for the damage; however, if the felled tree was poorly maintained or diseased and you took no steps to take care of it, their insurer may seek reimbursement from you for the damages. Homeowners insurance policies do not pay for removal of trees or landscaping debris that did no damage to an insured structure.

2. The power went out during the storm and I had to throw out all the spoiled food in the refrigerator and freezer, is this covered?

Following a hurricane, some insurance companies may include food-spoilage coverage, usually for a set amount that can range from $250 to $500 per appliance. Check with your agent or insurance company.

3. Should I still file a claim if I think the damage is less than my deductible?

Yes. Sometimes there may be additional damage that becomes evident in the months following a significant storm. Filing a claim, even if the damage total is under your deductible, will protect you in the event further repairs are needed. And if your home suffers damage from more than one storm in a single season, the damage from the first storm may apply toward the deductible amount.

Sandy Accelerating To Landfall

As Hurricane Sandy makes its final approach towards the New Jersey/New York area with landfall expected this evening, insurers are closely monitoring the storm and ready to respond to the needs of their policyholders.

The Wall Street Journal reports that insurers are assembling rapid-response teams along the Eastern seaboard and preparing to deploy claims specialists into hard-hit communities once the storm passes by.

In its 8am EDT advisory, the National Hurricane Center (NHC) says Sandy is expected to transition into a frontal or wintertime low pressure system prior to landfall:

However†¦This transition will not be accompanied by a weakening of the system†¦and in fact†¦a little strengthening is possible during this process. Sandy is expected to weaken after moving inland.†

See the NHC’s statement about Sandy’s transition to a post-tropical cyclone here.

It’s important to recognize that hurricane-force winds extend outward up to 175 miles from Sandy’s center and tropical-storm-force winds extend outward up to 485 miles, making this a very expansive storm.

Insurers play a vital role in helping individuals and businesses recover from the potentially devastating effects of disaster such as a catastrophic hurricane, according to the Insurance Information Institute (I.I.I.).

Insured catastrophe losses in the United States totaled $35.9 billion in 2011, well above the 2000 to 2010 average of $23.8 billion (in 2011 dollars) according to figures from Munich Re. Thunderstorms, including tornado events, were the costliest type of natural disaster in 2011, based on insured losses (over $25 billion). However, tropical cyclones, which include hurricanes, were the second most costly event category ($5.5 billion in insured losses), with Hurricane Irene accounting for most of the losses ($5 billion, including flood losses covered under the National Flood Insurance Program).

Catastrophe modelers AIR Worldwide and EQECAT are posting regular updates on the storm’s approach and expected damage to the Northeast.

U.S. East Coast Eyes Sandy

As Hurricane Sandy’s #Frankenstorm tag gathers momentum on Twitter, so does the size of the actual storm.

In its 8am EDT outlook, the National Hurricane Center (NHC) noted that tropical storm force winds extend outward up to 275 miles from the center and that Sandy’s wind field is expected to grow in size during the next couple of days.

Sandy is currently a Category one hurricane on the Saffir-Simpson hurricane wind scale, but some weakening is possible during the next day or so, the NHC said.

The current forecast track from the NHC brings Sandy to landfall along the Delaware/New Jersey coastline early Tuesday (see below).

Regardless of the exact track of the storm, these images show the size of the wind and rain event that the U.S. east coast can expect.

 

Check out iii.org for answers to all your  insurance coverage questions.

October Hurricanes

The National Hurricane Center (NHC) has given a tropical system located about 300 miles south of Jamaica a 90 percent chance of becoming a tropical cyclone during the next 48 hours.

In its 8am EDT tropical weather outlook, the NHC said:

Heavy rains from this disturbance are likely to spread over Jamaica†¦Hispaniola†¦and Eastern Cuba during the next several days. These rains could produce life-threatening flash floods and mud slides†¦especially in areas of high terrain.†

A Hurricane Hunter aircraft is scheduled to investigate the system this afternoon.

With six weeks left to the official end of the 2012 Atlantic hurricane season which runs from June 1 to November 30, it’s important to keep an eye on the potential track of “Sandy†.

Here’s a visual of the latest modeled tracks for the system, courtesy of Weather Underground. It’s worth noting that some of the computer models  have “Sandy” approaching the east coast by next weekend:

October hurricanes can be costly.

Remember 2005? Hurricane Wilma today ranks as the fourth most costly hurricane in the U.S., according to the Insurance Information Institute (I.I.I.).

Hurricane Wilma, which made landfall as a Category 3 hurricane down in Florida on October 24, 2005, produced insured losses of $10.3 billion, or $11.7 billion in 2011 dollars.