Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Hail losses no longer attritional, hail reinsurance recomended: RMS


Insurance industry losses from hail storms and extreme hail events are rising, with recent storms showing that hail should no longer be considered just an attritional loss causing peril, according to risk modeller RMS.

Matthew Nielsen, a director and meteorologist at RMS, commented on recent hail events; “This week’s severe storms in Tornado Alley and the surrounding regions is yet another example of how hail is no longer an attritional peril.”

Hail is not just a threat to insurers and reinsurers in the U.S. though, hail storms are becoming an increasing cause of insurance industry losses around the globe, with hail events last year in Europe resulting in an insured loss of around $5 billion and in Germany alone over $2.5 billion.

An increasing amount of investor capital in reinsurance and insurance-linked securities (ILS) funds has an exposure to hail events, particularly from collateralized reinsurance and private ILS deals. Catastrophe bonds also hold exposure to hail, however this is more typically within a transaction designed to protect against severe thunderstorm and tornado events, meaning that hail events are usually not large enough to erode any aggregate or principal alone.

The collateralized reinsurance space did suffer some losses as a result of hail events in Europe in 2013, according to reports. While minor this shows that the capital markets are prepared to provide reinsurance protection for this peril, which should encourage primary insurers seeking cover to assess both traditional reinsurance and capital markets backed solutions.

Nielsen continued; “Widespread hail events in the U.S. are not uncommon and can cause considerable damage to cars, homes, and buildings, while single hail events can produce very large losses.”

According to RMS severe storms can contribute more than one-third of all natural catastrophe losses in both the U.S. and Canada. RMS’ research shows that by late May, there’s an 80-90% chance of a severe thunderstorm occurring any day somewhere in the U.S. and a 92% chance each year that a severe weather event will cause insured losses that exceed $1 billion.

“With 60 percent of average annual storm losses in the U.S. coming from hail, insurers should consider looking at reinsurance for these events,” Nielsen explained.

RMS said that the 2014 severe thunderstorm season has been relatively quiet so far, with only one event resulting in an insured loss of over $1 billion. Of the events tracked by RMS in 2014, hail and straight-line wind perils have occurred roughly six times as often as tornadoes.

With the severe thunderstorm season an important peril for the ILS, catastrophe bond and alternative reinsurance capital market to track, we’ve added a new page under the ‘Catastrophes’ tab focusing on these perils.

Our U.S. tornadoes and severe thunderstorms page provides easy access to graphics showing the outlook for severe thunderstorm, hail and tornadoes, along with charts tracking the annual tornado occurrence trends and other useful maps.

RMS provided a summary of last week’s severe thunderstorm activity:

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

The severe thunderstorms brought damaging hail, flash flooding, hurricane-strength straight-line winds, and tornadoes to Tornado Alley. Large baseball size hail and torrential rain have been the signature components of the system.

States impacted include Nebraska, Ohio, Iowa, Indiana, Kansas, and Missouri (all parts of Tornado Alley) with eastern Nebraska and western Iowa the worst impacted by the largest hail.

The severe storms were caused by a low-pressure system moving eastward as a strong low-level jet of moisture brought warm, moist air northward from the south, which created favorable conditions for severe weather. The lower and upper level atmospheric wind profiles did not make conditions favorable for rotating storm, and as a result, there were few occurrences of tornadoes.

The location of the storms is in line with expectations for June and July outbreaks, when severe weather begins migrating north from Texas and Oklahoma into areas of the Northern Plains, such as Nebraska and Iowa.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.