Buffalo snow claims could hit catastrophe reinsurance treaties: A.M. Best

The recent severe snowstorm in the Buffalo, New York state area, could cause losses at some regional property insurance writers to the extent that it hits the retention on their catastrophe reinsurance treaties, according to A.M. Best.

No estimates of insured losses are currently available for the Buffalo snowstorm that hit the region just a few days ago. The snowstorm on the 20th and 21st of November was caused by polar winds blowing over the Great Lakes which are still warm and free of ice. The result can be a conveyor belt of snow that just keeps coming, as evidenced by the massive dumps of many feet of snow in the Buffalo area.

Rating agency A.M. Best believes that the eventual insured loss tally from this event could be sufficient to cause some regional property insurance writers to call on their reinsurers to help them to pay claims.

It will take some time for the full extent of the damage to be understood, said A.M. Best in a briefing, noting that losses will be caused by roof collapses, damage to porches, awnings and other structures, as well as ice dam claims. There are also reports of door and wall cave-ins in some regions, while flooding as the snow melts is also likely to result in additional claims and business interruption on commercial policies will also contribute.

Just yesterday we wrote that the total for insured losses from winter storms in 2014 keeps rising, with an expectation that the toll for the year will move beyond $2.5 billion. It could move well past that number if the Buffalo snowstorm event has caused an insurance industry loss sufficiently large to hit reinsurers as well.

A.M. Best notes that it is the smaller, regional underwriters of property insurance that are most likely to be hurt by this event, so the nationwide players are likely safer. That means that any reinsurance treaties that are triggered and called on to payout could be the smaller ones in the market, so minimising the impact to reinsurers or to any collateralized markets that participate in them.

A.M. Best explained; “The potential exists for some companies, particularly the small, geographically concentrated writers, to hit the retention on their catastrophe treaties. Retention levels are moderate and manageable in most cases. At this time, A. M. Best believes that companies have sufficient reinsurance coverage in place to maintain existing financial strength ratings.”

So the Buffalo snowstorm event alone is unlikely to trouble any insurance-linked securities managers or funds that put down collateralized lines on regional property reinsurance programs. It is also unlikely to have any effect on any of the exposed winter storm catastrophe bonds, although should USAA’s losses from the event be significant it could contribute a small amount to a build up of aggregate losses, however that is unlikely at this time.

More significant is the fact that A.M. Best feels this event could hit reinsurers. As we said in our article yesterday, attritional losses from winter storms seem to be increasing in recent years. These, often non-catastrophe, losses are sometimes unexpected, demonstrating the importance of modelling winter impacts and also hedging them.

With more wintry weather hitting New York yesterday and the U.S. northeast seeing more today on Thanksgiving, the insured losses from winter storms will keep rising. This also demonstrates the need for weather risk management solutions for businesses, as well as insurance and reinsurance is made clear by these events, as often the weather risk solutions can provide the most effective protection for contingent losses such as business interruption.

Also read:

– U.S. winter storm losses growing. Cat bonds likely safe, for now.