Insurers Ride Out Powerful Storms of 2012

Insured losses in the United States in 2012 totaled $58 billion – far above the 2000-2011 average loss of $27 billion (in 2012 dollars), according to Munich Re. Those losses were caused by tornadoes, tropical systems, derechos, hail, wildfires, winter storms and other major natural disasters.

Many records were tied or broken during the 2012 season. Tropical Storm Beryl became the strongest off-season Atlantic tropical cyclone to ever strike the United States, the formation of Tropical Storm Debby on June 23 made it the earliest formation of a season’s fourth named storm on record and Sandy was the largest known Atlantic hurricane by diameter.

Making landfall near Atlantic City, N.J., on Oct. 29, Sandy caused the highest insured loss in 2012, estimated at $25 billion. Sandy ranks behind 2005’s Katrina ($47.6 billion) and 1992’s Andrew ($25 billion) [in 2011 dollars]. Sandy also had an estimated claim count of 1.3 million compared with Hurricane Katrina, which produced 1.7 million claims. Most industry experts agree the losses were smaller, in part, because much of Sandy’s damage was due to storm surge and subsequent flooding, not covered by standard homeowners or most small business owners’ commercial insurance policies.

More Severe Weather Patterns

Events such as Sandy are signs that the world is entering a period of more frequent and severe weather patterns.

Ten of the 12 most costly hurricanes to ever strike the U.S. occurred between 2004 and 2012. Experts suggest disaster losses along the coast are likely to escalate in coming years, in part because of huge increases in development. One catastrophe modeling firm predicts that catastrophe losses will double every decade due to growing residential and commercial density and more expensive buildings. Data from the Census Bureau, collected by USA Today, shows that in 2006, 34.9 million people were seriously threatened by Atlantic hurricanes, compared with 10.2 million in 1950.

Despite these storms and forecasts, insured losses through Sept. 30, 2012, were down an incredible 51 percent to $16.2 billion from $32.8 billion the previous year (excluding crop losses). Losses from tornados and winter storms were well below those experienced in 2011. Compare that to catastrophe losses in 2010, which totaled $14.1 billion, $3.6 billion more than in 2009, when catastrophes totaled $10.5 billion. There were 33 catastrophes in 2010, up from 27 in 2009. U.S. catastrophe losses, mostly from tornadoes, caused an unprecedented $27 billion for the first half of 2011.

The insurance industry also went into 2011 better capitalized than at any other time in history and financially was well prepared to handle 2012 losses. The property/casualty insurance industry turned in a relatively strong underwriting performance during the first nine months of 2012 and overall return on average surplus (profitability) compared with the first nine months of 2011.

Although profitability surged amid much lower catastrophe losses during 2012’s first nine months, overall investment gains were down, in large part to historically low yields on fixed income securities. Premium growth, while still modest, accelerated to its fastest pace in the post-crisis era.

Fundamentally, the P/C insurance industry remains financially strong with capital adequacy ratios remaining high relative to long-term historical averages. It appears likely the industry’s recent momentum will carry into 2013, which may prove vital as big snow events may return this winter. Winter storms were the third most costly type of natural disaster in the U.S. in 2011, with $2 billion in insured losses in 2011, according to a report by Munich Re.

As for hurricanes, on Dec. 5, 2012, Tropical Storm Risk issued an extended-range forecast indicating an above-average hurricane season for 2013. If Andrea – the first named storm of the 2013 hurricane season – hits the Houston/Galveston area as predicted, the industry will be prepared.