AM Best is expecting losses from the weekend’s devastating tornado outbreak to be concentrated in the commercial multiperil and homeowners lines, with some losses borne by auto physical damage.
On December 10 more than 30 tornadoes were reported across five states—Arkansas, Illinois, Kentucky, Missouri, and Tennessee—causing widespread devastation and loss of lives.
One large tornado, called the Quad-State Tornado, lasted for four hours and impacted Kentucky, Arkansas, Missouri, and Tennessee, with Mayfield, Kentucky, experiencing the brunt of losses.
There’s a belief among analysts that, despite it still being too early to assess damage, the insurance industry is well capitalised enough and has adequate risk management programs for the tornado outbreak to be an earnings event for the industry.
Furthermore, the Kentucky insurance market is not concentrated and so losses may be spread out among insurers.
However, despite it being manageable, AM Best stresses that this event will be an unwelcome dampener to the underwriting profitability of the insurance industry, already dealing with very eventful year, with more than $20+ billion in estimated losses.
Another compounding factor can be seen in the arrival of this outbreak at a time when supply chain issues and rising costs owing to inflationary pressures are looking large.
According to the NOAA, there had already been 1,174 tornadoes before December 2021, compared to 1,075 in 2020.
Analysts expect most of these losses to be limited to primary insurers. The growing frequency of tornadoes and such events should lead to insurers re-examining their reinsurance protection and to reinsurers becoming more cautious as they look at demand and risk, which may be reflected through pricing, limits, deductibles, and other underwriting tools.