U.S. convective storm re/insurance losses hit $11bn in 2017 YTD

by Artemis on May 31, 2017

Insurance and reinsurance industry losses from severe convective storms, thunderstorms, tornadoes, large hail and associated damaging winds, are now seen at around $11 billion for the year so far in 2017, the tenth consecutive year where severe thunderstorm insured losses have passed $10 billion.

The first-quarter of 2017 saw insurance and reinsurance losses due to severe thunderstorm weather and tornadoes passing $5.7 billion, which made it the most costly Q1 on record for this peril according to reinsurance broker Aon Benfield’s catastrophe risk modelling and analytics unit Impact Forecasting.

The rate of attrition has continued, with the total insurance industry loss passing $10.5 billion by the middle of May and assumed to now be close to, or above, $11 billion after more convective storm activity over recent days.

Steve Bowen, Impact Forecasting director and meteorologist, shared the below chart which shows that for each of the last ten years the insurance and reinsurance industry has had to deal with over $10 billion of industry loss due to severe thunderstorm activity.

Insurance industry losses from U.S. severe thunderstorms by year

“Through the first two weeks of May, the US had already seen claims payouts of at least USD10.5 billion from severe convective storm events. Following this past weekend’s latest outbreak from Oklahoma to Virginia, that aggregated total will almost certainly be north of USD11 billion once the bulk of the claims start being filed and processed following the holiday weekend. This means that the US has already topped the USD10 billion mark in insurable loss from the SCS peril; marking the tenth consecutive year,” Bowen from Impact Forecasting commented to Artemis.

U.S. severe thunderstorm and convective storm activity has been high so far in 2017, resulting in impacts to a number of reinsurance arrangements already and some insurance-linked securities (ILS) funds reporting negative months due to the impacts of hail and tornadoes.

At least one catastrophe bond has been impacted, Skyline Re, as the sponsor of that deal reported an aggregation of losses which has reduced the deductible sitting beneath the reinsurance that its cat bond provides.

The severe convective storm peril is the main contributor to deductible erosion on aggregate reinsurance and ILS arrangements through the first-half of the year and 2017 shows that once again the risk may be rising for certain reinsurance and ILS contracts as aggregated losses mount up.

“To say it’s been active this year for the SCS peril would be an understatement,” Bowen exclaimed.

Bowen went on to explain that so far in 2017 the majority of the insurance industry’s losses around the globe are from the severe convective weather in the United States.

He commented; “Thus far, the SCS peril has accounted for more than 70 percent of all global insured losses (USD15.6 billion). The US accounts for more than 90 percent of the global SCS loss, and 77 percent of all global insured losses to this point. It is important to note that it is not entirely unexpected that the SCS peril is the predominant weather peril for Q1/Q2. That is historically the case. However, this pattern often shifts to tropical cyclone in Q3 once the Atlantic and East/West Pacific seasons get underway.

“In terms of total global insured loss, the only other billion-dollar peril to this point is EU Windstorm (USD1.2 billion). Tropical cyclone, winter weather and flood are all individually less than USD1.0 billion. The one peril which has been very quiet to start the year has been earthquake; in which insurable losses are currently estimated at less than USD15 million.”

On an unadjusted basis, U.S. tornado counts are currently running well above the long-term average, so it’s no surprise that this has translated into a higher loss count for the insurance and reinsurance markets.

U.S. tornado counts and annual trend

If the rate of attrition continues, the aggregation of losses will continue to increase and the insurance or reinsurance industry loss will rise further. It certainly looks, at this stage, that 2017 severe convective storm losses will be one of the highest years on record, which will likely translate into further attrition for ILS funds and collateralized reinsurance arrangements.

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