Thunderstorms, tornadoes, hail, floods take their toll on insurers in April

by Artemis on May 7, 2014

The insurance industry faces a rising bill for damage from severe weather which occurred in April, according to the latest report from Impact Forecasting. Thunderstorms, tornadoes, hail and floods in April are set to cause in excess of $1 billion insured losses.

Impact Forecasting, the catastrophe modelling unit of reinsurance broker Aon Benfield, identified a number of events which have caused a significant economic and insurance industry loss during the month of April.

The monthly catastrophe report from Impact Forecasting discusses a number of periods of severe weather across the U.S. which have resulted in a significant insured loss.

A severe weather outbreak affected the central and eastern United States between the 2nd and 4th, injuring several people. The Storm Prediction Center (SPC) registered reports of tornadoes, hail and damaging winds in the Plains, Midwest and the Mississippi Valley during the stretch. The most significant damage was attributed to hail, as hailstones the size of softballs struck the Denton, Texas region. Other states affected included Missouri, Oklahoma, Arkansas, and Illinois. Total economic losses were estimated at USD950 million, with insured losses in excess of USD650 million. The Insurance Council of Texas listed insured losses in Denton alone at beyond USD500 million.

Severe thunderstorms swept across central and eastern sections of the United States between the 12th and 14th, injuring more than a dozen people. Most of the damage was attributed to large hail, damaging straight-line winds and flooding rains, though multiple tornadoes did touch down. The most severe impacts were registered in parts of Michigan, Illinois, Wisconsin, Kansas, and Texas as up to tennis ball-sized hail and winds in excess of 80 mph (130 kph) were reported. Total economic losses were estimated at USD625 million, with insured losses at USD400 million.

Multiple days of prolific severe weather affected much of the central and eastern United States between April 27 and May 1, killing at least 39 people and injuring more than 250 others. Widespread damage was noted in more than 20 states following at least 69 confirmed tornado touchdowns (including 11 rated EF-3 or higher), up to softball-sized hail, and damaging straight-line winds in the Plains, Mississippi Valley, Southeast, and the Midwest. Torrential rains also caused significant flash flooding in parts of Florida, Alabama, and the Mid-Atlantic. Given the scope of recorded damage, preliminary assessments indicate that this has the potential to be a multi-billion dollar economic loss event. Insured losses will be minimally in the hundreds of millions (USD), and possibly higher.

Added to these three periods of severe weather in April, which are set to result in a combined insurance industry loss well in excess of $1 billion, Impact Forecasting also reports a significant economic impact from drought to the agricultural sector in April.

Exceptional drought conditions continued to worsen across portions of the western U.S. during the month of April. The worst impacts were in California, where more than 96% of the state was minimally in a severe drought. Severe crop damage was reported, and the California Farm Water Coalition cited losses nearing USD3.6 billion. Additional agricultural impacts elsewhere in the West will cause the overall drought cost to top USD4.0 billion.

These drought conditions show no sign of letting up currently which means that the agricultural sector and as a result agricultural insurers and reinsurers should expect the financial impact to continue.

Adam Podlaha, Head of Impact Forecasting, commented; “The recent outbreaks of tornadoes, large hail and damaging straight-line winds in the United States have emphasized the importance of historical data analysis for insurers and reinsurers when trying to forecast future losses. Impact Forecasting has expanded and implemented the past 10 years of observed data from the U.S. Storm Prediction Center into its ELEMENTS platform, which is now being utilized by our insurer and reinsurer clients to better gauge their losses across events with lower return periods.”

Added to the insurance industry losses from severe winter weather in the U.S. at the start of the year, some insurers will begin to feel the pinch as the aggregated losses from catastrophes start to erode their profits a little this year. The drought losses are an issue that agricultural insurers and reinsurers are going to face over the course of this year and have the potential to worsen, with April and May both key growing months.

These April severe thunderstorm outbreaks are unlikely to pose any threat to any in-force catastrophe bonds which cover tornado type risks, but the losses may be severe enough to touch on some reinsurance programs.

Globally, insurers are already facing over $7 billion of catastrophe and severe weather losses from the first-quarter of 2014. April’s billion-plus from severe U.S. thunderstorms and tornadoes alone will be an unwelcome addition.

The full report from Impact Forecasting can be downloaded in PDF format here.

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