Recent analysis from Karen Clark & Company (KCC) that utilises its severe convective storm (SCS) Reference Model shows that the peril is a growing concern for the insurance and reinsurance industry, driving expected annual aggregate losses above the expected insured losses from hurricanes and earthquakes combined.
According to KCC analysis, the expected annual losses from SCS are almost $25 billion, which is higher than for hurricanes on average, and even above the ten-year return period.
In a recent white paper, KCC highlighted findings from recent analysis that explores the impacts of climate change and cyclical factors on the frequency and severity of SCS. For the study, KCC explains that it used its SCS Reference Model, which “estimates the insured losses from all SCS events and not just those defined as catastrophes by Property Claims Services (PCS).”
“KCC analyses of insurer claims data have revealed that PCS defined catastrophes capture only a portion of insurer SCS losses. KCC’s new model captures all losses because insurers require estimates of their total SCS losses for underwriting and pricing purposes,” the firm explained.
In recent times, SCS, which are large storm systems that bring tornadoes, hail and high winds, have resulted large losses for insurers and reinsurers, with multi-billion dollar events seemingly increasing in frequency.
As noted by KCC, in 2016 a single hailstorm in Texas resulted in losses of more than $3 billion, while SCS losses of more than $6 billion in the first-quarter of 2017 set a new record.
“SCS losses are a growing concern of the insurance industry. This study has shown that while the numbers of tornadoes and hailstorms are not exhibiting increasing trends, there has been an increase in the annual variability of significant SCS events. Specifically, the number of days on which there is at least one EF1 or stronger tornado is decreasing while the number of days with large numbers of tornadoes is increasing,” said KCC.
The white paper states that individual event losses from SCS can surpass $10 billion, while annual losses can be higher than $40 billion, with a 10% probability, based on current exposures and climate conditions.