Losses from U.S. severe thunderstorms & tornadoes to hit $2bn: Aon Benfield

Insured losses from outbreaks of severe thunderstorms in the U.S. in April are expected to reach $2 billion, according to an estimate from reinsurance broker Aon Benfield’s risk modelling unit Impact Forecasting.

The insurance and reinsurance industry is expected to pay claims amounting to $2 billion or more from a number of severe thunderstorm outbreaks during the month of April. Five separate outbreaks were recorded, with one event expected to contribute around $750m of insurance industry losses.

After a near record low-level of tornado activity in 2014, followed by one of the slowest starts to the season on record in early 2015, the U.S. severe thunderstorm and tornado season took off in April, with a number of outbreaks resulting in numerous tornadoes, severe hail episodes and flooding rain.

Impact Forecasting explained; “After a relatively benign start to the year for severe thunderstorms in the United States, activity greatly increased in April as no fewer than five separate events impacted in central and eastern portions of the country.

“Dozens of tornadoes touched down, including an EF4 in the town of Fairdale, Illinois, though the most costly damage occurred as a result of large hail, damaging straight-line winds and isolated flash flooding. Parts of the Plains, Midwest, Southeast, Mid-Atlantic and Southeast sustained the worst impacts.”

The expected impact to insurers of April’s activity will hurt, in terms of claims paid, but is far from sufficient to drain capital from the reinsurance market. Some insurers could be hit hard enough to make a reinsurance claim, but the activity is more likely to erode aggregate deductibles in some reinsurance layers.

“Total combined insured losses were expected to reach USD2.0 billion, including more than USD750 million from one event alone. Economic losses were even higher,” Impact Forecasting said.

While there has been a significant uptick in tornado activity in April, which has also continued into May with a number of outbreaks seen in recent days which will have caused additional insured losses, the total run rate remains low.

Impact Forecasting said; “Despite an active month for U.S. tornadoes (185), the annual total remained at a historically low level.”

The charts below show that tornado activity remains well below average. However the number of tornado reports, on an inflation adjusted basis (the lower chart), has now risen above the minimum recorded.

U.S. tornadoes, daily count and annual trend - Source: NWS Storm Prediction Center

U.S. inflation adjusted annual tornado trend and percentile ranks - Source: NWS Storm Prediction Center

As ever, we’d advise to keep an eye on the trends in tornadoes and severe thunderstorms as they develop throughout the season, as the losses they cause can be significant. Severe thunderstorm activity remains one of the largest sources of loss in the U.S., on an average across years.

You can analyse the season and see forecasts for convective storm outlooks here at Artemis over on our U.S. tornadoes and severe thunderstorms page.

Impact Forecasting estimate of insured losses for April’s severe thunderstorm events comes from its April Catastrophe Recap report, which you can download here.