As initial estimates for the insured loss from the impacts of the recent tornadoes across a number of U.S. states start to be reported, Fitch Ratings expects this to be an earnings event for individual property and casualty (P&C) insurers and reinsurers.
Earlier today, cat risk modeller KCC pegged the insurance industry loss from the severe convective storm event in the U.S. in the fourth-quarter at an estimated $3 billion.
Supporting this initial estimate from KCC, insurance and reinsurance broker Aon has said that the outbreak will be a multi-billion dollar event for the industry.
The outbreak brought damaging winds and hail over December 9th – 12th and saw tornado activity hit at least six US states, including Arkansas, Illinois, Missouri, Mississippi, Tennessee, and Kentucky.
But while the tornadoes are expected to drive significant economic and insured losses, Fitch says that the losses are likely to be an earnings, rather than a capital event for individual P&C players.
Additionally, Fitch says that this tornado event will be more of a primary insurance event rather than reinsurance. This is because of the higher retention level of the major nationwide insurers exposed to the outbreak.
While the ratings agency expects primary insurers to feel the brunt of this event, it does warn that reinsurers will be impacted by aggregate covers given the accumulation of losses in 2021.
“Given the widespread nature of the event across six states, collective losses could be several billion dollars, with Kentucky suffering the largest loss of life and damages,” says Fitch. “The tornadoes could rival the $5 billion insured loss from the U.S. Midwest derecho event in August last year, which was another unmodeled type of event.”
According to Fitch, the December tornadoes will likely drive insured nat cat losses to the highest annual total in the U.S. since the 2017 record of roughly $130 billion.
Recently, reinsurance giant Swiss Re said that insured losses from nat cat events for 2021 amounted to $112 billion, which is up on both last year and the previous 10-year average.
What’s more, this figure from Swiss Re does not include any losses from the recent SCS outbreak in the U.S., suggesting the annual total will be closer to the $115 billion mark or even higher.
With insured losses already well above the $100 billion mark in 2021, this will add to re/insurers’ push for further rate improvements at the important January 1st, 2022 reinsurance renewals and beyond.
For the December outbreak, Fitch feels that “losses are likely most concentrated within large homeowner insurance underwriters that have effective claims resources and are well capitalized to absorb short-term volatility from outsized catastrophic events.”
As the ratings agency highlights, this type of weather event is unusual in December, which is typically the least costly month of the year for U.S. SCS insured losses.
“Climate change is one potential factor adding to higher costs and more unusual insured loss events in recent years. It has not impacted frequency of loss as much as the severity of events when they occur, although the longer-term implications are unclear,” says Fitch.
“The profitability of the P/C industry in 2022 will depend on loss cost inflation, stabilization of personal auto results and natural catastrophe experience. Continued inflation and supply chain issues may reduce profitability and/or potential losses, as the severity of insured property claims may be exacerbated by supply chain shortages of building materials and higher contract labor costs.”
