During the course of 2013 the difference between the frequency and severity of catastrophe events was highlighted, as the number of events exceeded the average while insured losses did not, according to Property Claim Services (PCS) 2013 catastrophe report.
During the year 2013 PCS designated 29 catastrophe events in the U.S., which is slightly above the ten-year average. However, despite the above average number of catastrophe events during the year, industry wide insured losses reported by PCS only amounted to $12.9 billion, from 1.8 million insurance claims, which PCS said is well below the ten-year average.
PCS also notes that this was in a year when 13 tropical storms formed in the Atlantic, a number which was inline with some of the forecasts, but these did not add to the insurance industry losses suffered. So this made 2013 a year of high frequency, in terms of PCS designated catastrophes and tropical storms, but low severity.
Had just one of those tropical storms intensified into a hurricane and struck the U.S. coastline the story could have been very different for insurers and reinsurers, possibly even turning 2013 into an above average year in terms of severity. PCS notes that insurers should not become complacent in the wake of a low severity catastrophe year like 2013.
In terms of the frequency of catastrophe events 2013 was the fifth most active year since PCS began keeping records back in 1950. Industry wide insured losses were very low though, in fact at their lowest level seen since 2000, according to PCS.
PCS said in its report that the type of perils underlying the catastrophe events experienced in 2013 are responsible for the gap between frequency and severity. Severe thunderstorms in the U.S. midwest accounted for 24 of the PCS designated catastrophe events in 2013 and these tend to cause fewer and smaller insurance claims than hurricanes or earthquakes.
PCS notes that 85,000 claims came from a late season November outbreak of midwest thunderstorm activity and rightly points out that insurers (and reinsurers) may want to think about whether such events should be anticipated in the future.
The $12.9 billion of insured losses attributed to the 29 PCS designated catastrophe events put 2013 46% below the ten-year average of $23.9 billion of losses, and 63% below 2012’s total of $34.96 billion. PCS notes that the total losses for 2013 was below a number of single events which have occurred over the last 15 years, again showing that if the severity events occur the insured loss toll to the industry can be very different.
PCS Canada designated six catastrophe events in 2013, which it said is consistent with both 2012 and the average since the firm began covering Canadian catastrophe events in 2010. Canada saw losses totaling $3 billion from these six events, according to PCS, from 92,300 recorded claims.
That total in Canada is a 170% increase from 2012, although the number of claims was lower than the 108,000 recorded in 2012. The 200% year-on-year increase in average paid is directly attributable to the nature and magnitude of events that affected Canada in 2013, said PCS.
Joe Louwagie, AVP at Property Claim Services (PCS) told Artemis; “The high frequency of catastrophe events and storm formations in the United States and Canada last year suggests the magnitude of what could have happened. One landfalling hurricane could have led to significantly different results. In the coming year, discipline and vigilance will be crucial, as severity does not always follow frequency.”
The annual catastrophe report from PCS contains more insight on losses at a state level and information on the firms catastrophe reports and data services, which are widely used across the insurance-linked securities, catastrophe bond and reinsurance market.