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New York Press Office: (212) 346-5500; media@iii.org
NEW YORK, January 18, 2013 — Property/casualty (P/C) insurers were well-capitalized before superstorm Sandy arrived and then allocated significant resources in response to one of the costliest catastrophes in U.S. history. But the increasing frequency and severity of weather events remain a cause for concern, according to panelists who convened this week at the Property/Casualty Insurance Joint Industry Forum, held here.
U.S. insured claim payouts due to catastrophes dropped to $16.2 billion from $32.8 billion during 2012’s first nine months as compared to the same timeframe in 2011 due to the relatively mild hurricane season through September 30, 2012, according to ISO’s Property Claim Services. This respite allowed insurers to build a record-high $583.5 billion policyholder surplus—the insurance industry’s cumulative assets, minus its liabilities—after the first nine months of 2012. Sandy alone, however, may have caused anywhere from $20 billion to $25 billion in insured auto, home and business insurance claims payouts after it made landfall near Atlantic City, New Jersey, on October 29, 2012, completely changing the way insurers will look back at 2012.
Ike generated $12.5 billion in insured claims payouts, and was followed three years later by Hurricane Irene ($4.3 billion). Months before Irene, there were spring 2011’s deadly and costly tornadoes in states such as Alabama and Missouri.
“It [Sandy] probably also highlights the whole issue that the industry is trying to deal with, which is ‘what is the new normal?’ as far as level of catastrophe losses,” said Vincent J. Dowling, managing partner, Dowling & Partners. “The last few decades, the losses relative to premium continue to increase, and we have not had ‘The Big One’ yet.”
“Over the last 10 years, ended 2012, the homeowners insurance business nationally made an annual after-tax profit of about four percent,” stated Brian Sullivan, editor and publisher of Auto Insurance Report and Property Insurance Report. “Now that doesn’t cover the cost of capital, but when you look at the business, and you think of just how disgusting the past 10 years has been in terms of performance, that’s not really a disaster.” The silver lining for the industry, Sullivan observed, is “that information and data about the nature of risk, and the nature of claims, is exploding.”
“For the most part, we’re not seeing a lot of rating movement because most companies have managed this [Sandy’s aftermath] fairly well, and been able to diversify themselves enough that it hasn’t had a major impact,” said Matthew Mosher, senior vice president and chief rating officer, A.M. Best Company, when asked about the industry’s post-Sandy financial condition. “There are some [insurers] that probably had outsized losses, in terms of what they would have liked. And I would expect that individual companies may make some changes in terms of what their portfolio looks like but nothing that we look at in terms of financial strength, risk, or anything of that nature.”
The session’s moderator mentioned that, amid all of the industry’s focus on Sandy and its repercussions, policymakers continued to weigh the enactment of new laws and regulations which would likely make it harder for insurers to operate.