Insurer State Farm, has announced that it has already paid close to $1 billion in claims to policyholders for damage caused by severe thunderstorm, hail and tornado damage in late April and early May. If categorized as one event State Farm say the three most devastating outbreaks would be the seventh most costly homeowner loss in the company’s history.
The final insured loss and claims paid amount will likely far exceed $1 billion as the losses from the Joplin, Missouri tornado (among other events) have not yet been paid. An average year see’s State Farm paying out approximately $3.8 billion in North America on catastrophe losses, so far in 2011 they have already paid out $2.5 billion.
“The country has been hit hard with an unprecedented succession of horrible weather and horrific losses. From the claims volume and types and extent of damage, you can easily characterize these storms as a ‘Spring Hurricane.’ ” said Brian Boyden, State Farm Executive Vice President.
Losses from this one insurer have reached a very high level from just this spate of tornadoes and storms which gives us a little more insight into whether there will be any impact to exposed catastrophe bonds. As an example, take American Family Mutual Insurance’s Mariah Re cat bond, has an initial attachment point of $825m, meaning it might have triggered had the storms been in covered areas, qualified under the terms of the deal and State Farm been the issuer.
The Residential Reinsurance cat bonds which are exposed have a higher initial trigger level (around $1.38 billion), but aggregates losses from severe thunderstorms and tornadoes across a year period, so there is still a chance that this bond could be negatively impacted by the accumulated losses.
We’d expect to hear something from the rating agencies within a fortnight regarding the recent losses and whether they impact these cat bonds. Perhaps, given the extent of their insured losses, State Farm will look more closely at the capital markets to boost their reinsurance protection for future storm seasons.
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