P/C Industry Capacity At New Record High

The property/casualty insurance industry ended the third quarter of 2012 in extremely strong financial condition, and is fully prepared for the enormous costs of Hurricane Sandy, according to I.I.I. president Dr. Robert Hartwig.

In his commentary on the industry’s 2012 first nine months results, Dr. Hartwig notes that policyholders’ surplus rose to a record $583.5 billion as of September 30, up $12.8 billion or 2.2 percent from the previous record high of $570.7 billion as of March 31, 2012, and up $33.2 billion or 6.0 percent from $550.3 billion at year-end 2011.

Dr. Hartwig comments:

During 2011, policyholders’ surplus actually shrank by 4.6 percent as catastrophes took their toll. The fact that the industry was able to rapidly recoup those losses and maintain such a strong capital position through the first nine months of 2012 ahead of Hurricane Sandy is further evidence of the P/C insurance industry’s remarkable resilience in the face of extreme adversity.

The bottom line is that the industry is, and will remain, extremely well capitalized and financially prepared to pay very large scale losses in 2013 and beyond despite the fourth quarter impact of Hurricane Sandy.†

Other key takeaways from the industry’s 2012 first nine months results: profitability rebounded driven by a sharp drop in catastrophe losses and a marked acceleration in premium growth.

According to ISO’s PCS unit, catastrophe losses plunged by more than half (51 percent or $16.6 billion) to $16.2 billion in the first nine months of 2012 from $32.8 billion in the first nine months of 2011.

Note: the results for the first nine months of 2012 do not include the impacts of Hurricane Sandy, which slammed into the Northeast United States in late October.

Net written premiums were up 4.2 percent in the first nine months, a full point above the 3.2 percent gain recorded in the year-earlier period. Dr. Hartwig predicts that net written premiums for full-year 2012 will likely expand at their fastest pace in nearly a decade.

The P/C industry’s overall net income after taxes (profits) surged in the first three quarters of 2012 by 221.7 percent to $27.0 billion from $8.4 billion in the year earlier period.

The industry’s annualized statutory rate of return on average surplus was 6.3 percent during the first nine months of 2012 (6.6 percent after excluding mortgage and financial guaranty insurers), up from 2.0 percent in the first nine months of 2011 (3.1 percent after excluding mortgage and financial guaranty insurers).

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

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.

Dreaming of a White Christmas

Are you dreaming of a white Christmas? The chances of that happening are revealed in an updated map from NOAA’s National Climatic Data Center (NCDC).

The map shows the climatological probabilities of a white Christmas across the United States.

Based on the most recent 1981-2010 Climate Normals, the Probability of a White Christmas map shows the climatological probability (in percent) that a snow depth of at least 1 inch will be observed on December 25.

Not surprisingly, the highest probabilities are in northern and mountainous areas of the country (see below):

In the words of NCDC:

The actual conditions this year may vary widely from these probabilities because the weather patterns present will determine the snow on the ground or snowfall on Christmas day. These probabilities are useful as a guide only to show where snow on the ground is more likely.†

Time to check out I.I.I. tips on winter proofing your home.

See NCDC’s U.S. Daily Snowfall map to keep track of the snowfall across the U.S. on a daily basis.

U.S. Insured Property Values Continue To Rise

Catastrophe and risk modeling firm Karen Clark & Co (KCC) has just released a timely report on increasing concentrations of property values in the United States.

The report finds that insured building values in the U.S. now exceed $40 trillion, including residential, commercial and industrial structures. When you add in contents and time element exposures, that figure doubles to over $80 trillion.

A key takeaway is that of the $80 trillion in total U.S. property exposure, nearly $15 trillion is in the Gulf and Atlantic coastal counties most exposed to hurricane risk.

Coastal property exposures are highest in New York ($4.938 billion), Florida ($3.305 billion), Texas ($1.446 billion), Massachusetts ($1.152 billion) and New Jersey ($1.109 billion), according to KCC’s analysis.

Overall, the state with the most insured property value is California, followed by New York and Texas. The top 10 states account for over 50 percent of the U.S. total.

Five counties each have over $1 trillion of exposure with Los Angeles, CA, New York, NY and Cook, IL leading the way. The top 10 counties account for 15 percent of the U.S. total.

The latest industry exposure data comes from KCC’s RiskInsight risk management platform. Insurers and reinsurers use this database for risk management and strategic planning.

Artemis blog has more on the findings.

Carriers Reassess Definition of Terrorism Risk

The scale and damage caused by recent global unrest has prompted a reassessment among risk carriers of how terrorism related risks and coverages are defined, according to a just-released report by Guy Carpenter.

Major terrorist attacks have occurred in Indonesia, Madrid, London and India since 2001, and the emergence of strong and independent al-Qaeda affiliate groups in unstable regions of the world now poses a significant threat to Western interests.

Guy Carpenter’s analysis finds that in addition to a now diverse and dispersed terrorism threat, there has been a dramatic rise in political instability and civil unrest around the world in recent years.

Several countries in the Middle East and North Africa have seen violent uprisings, resulting in heightened political uncertainty. European countries such as Greece and Spain have also seen violent protests against a backdrop of depressed economic growth and high unemployment.

The report says:

These developments have had a significant impact on the global terrorism (re)insurance market. Global unrest has triggered a growing need for civil unrest and riot coverages in some international terrorism programs. There has also been an increased number of territory-specific losses in the facultative reinsurance market, impacting local capacity.†

Guy Carpenter goes on to explain that the definition of an “act of terrorism† can be open to different interpretations:

Terrorism coverage is often incorrectly perceived to cover all violent human acts resulting in property and business interruption losses. It must in fact meet the definition of terrorism in order for coverage to apply. This has led to renewed interest in the broader political violence coverage for exposures worldwide as it provides comprehensive protection regardless of how the event is defined.†

A recent paper on terrorism risk by the Insurance Information Institute (I.I.I.) noted that despite recent counterterrorism successes, including the killing of al-Qaida leader Osama bin Laden, terrorism is an evolving and ongoing threat for the foreseeable future.

MarketScout: Average P/C Rate Increase 5%

The composite rate for U.S. commercial lines increased by 5 percent in November, according to the latest analysis from online insurance exchange MarketScout.

Property, excess liability, general liability and workers’ compensation rates increased the most at plus 5 percent. Surety had the smallest increase at plus 1 percent.

By industry class, manufacturing had the most significant month on month rate increase at plus 6 percent, compared to plus 4 percent the prior month. Transportation accounts were also up 6 percent.

Richard Kerr, CEO of MarketScout, said the manufacturing increase was surprising:

Normally, manufacturing is a very stable industry class absent quick pricing changes. Going from plus 4 percent to plus 6 percent was unusual.

As for transportation, the trucking segment of this industry class is what is really driving the rate increases for the class at plus 6 percent. The losses suffered by the trucking market have been considerable over the last several years. We expect further rate increases for trucking exposures.†

Check out I.I.I. information on the industry’s financial results and market conditions.

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.