Feature Story:

First-quarter catastrophe activity could mean a long year for insurers

by Gary R. Kerney, Assistant Vice President, ISO Property Claim Services

If catastrophe activity in the first quarter of 2008 is an indication of things to come, insurers better hold on to their hats. ISO’s Property Claim Services® (PCS®) unit declared nine catastrophes from January to March. And based on current estimates, PCS reports that insurers can expect to pay $3.35 billion for the resulting insured property damage.

Insured loss

FEMA/George Armstrong

The nine events identified as catastrophes by PCS include one that PCS declared solely for the workers compensation loss associated with a February explosion at a sugar refinery in Georgia. That declaration is in keeping with PCS’s commitment to identify events affecting the property/casualty industry. At this time, PCS has not estimated the extent of the insured workers compensation loss. The analysis in this article excludes that catastrophe.

If you remove that particular event from the summary total, the remaining eight events still represent the greatest frequency in a first quarter since 1999 — tied with the eight events declared in 2005. The insured property loss, however, remains the largest in the last decade.

The following chart provides a comparison of frequency and loss over the past ten years:

Of the eight events in this analysis, seven were related to outbreaks of severe weather (damaging wind, large hail, flooding, and tornadoes), and one was a winter storm.  

Claims

FEMA/Jocelyn Augustino

The eight catastrophes combined to cause more than 615,000 claims in 22 states. Claims in personal lines produced 56 percent of the total loss, or nearly $1.9 billion. The commercial property loss was 31 percent of the total, or just over $1 billion. The loss involving insured vehicles totaled almost $0.5 billion dollars, or 13 percent of the total loss.

The costliest catastrophe, at $955 million, resulted from an outbreak of severe weather that spread from Texas to Ohio in early February. That catastrophe caused about 120,000 losses in the eight affected states. The first catastrophe of the year, a winter storm in January, affected 13 states and caused an estimated $745 million of insured property damage. It also inflicted damage to 177,000 personal and commercial properties and vehicles.

The 22 states named by PCS in the various catastrophe definitions were Alabama, Arkansas, California, Georgia, Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, Mississippi, New Jersey, New York, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Washington, and Wisconsin.

Out of those states, estimates for the greatest insured losses are:

Georgia              $610,000,000
Tennessee          $535,000,000
California           $360,000,000
Texas                 $270,000,000
Arkansas            $223,000,000

Tornadoes

As the following charts show, reported tornadoes in the first quarter exceeded the number that occurred in the first quarter of each year since 2005. However, the National Weather Service is still in the process of verifying most of the counts.

Several tornadoes had a significant effect in urban areas in the South and Midwest. Tornadoes caused extensive insured property damage in places such as Atlanta, Little Rock, and the suburbs of Memphis. It is also notable that in the first few months of 2008, the number of killer tornadoes and tornado deaths either are above average or seem likely to exceed recent years.

Monthly Tornado Activity

 A year of reckoning

It’s difficult to predict the future. However, early indications seemingly suggest a tough year ahead in 2008. Our analysis observed a significant increase in cost and frequency of catastrophes in the first quarter. Reported tornado activity in the early months of the year has increased notably. Recent updates in the 2008 seasonal hurricane forecasts indicate greater activity than earlier forecasts, and long-term forecasts call for more intense and increased tropical activity. It appears that 2008 could become a year of reckoning.

About PCS
PCS is recognized around the world as the property/casualty insurance industry’s authority on catastrophic events in the United States. In addition to providing a wide range of services to subscribers in the United States, PCS maintains contact with industry representatives in many foreign cities and Bermuda.

The PCS name has become synonymous with catastrophe reporting and assignment of catastrophe identification numbers. PCS information is used primarily as a check on internal company damage estimates in setting loss reserves and as a guide to deployment of field adjusters.

The PCS Reviews are proprietary and copyrighted documents, which may not be copied or redistributed without prior written consent. Subscribers to PCS are permitted to copy the bulletins for their internal use only. The catastrophe loss estimates reported in the PCS Catastrophe Reviews are proprietary intellectual property. They may not be used by anyone for any investment or insurance purposes without an appropriate license from ISO.

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Comments

The comments posted by our readers do not represent the opinions of ISO or the author.

From: Mark McEvoy
Comment: A good read.

From: Vicki Jacobs
Comment: An EF-5 tornado just devasted the Parkersburg, IA area on May 25, 2008, killing 7 people.

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