U.S. insurer State Farm says that it has paid its policyholders $5 billion so far during 2011 for catastrophe claims resulting from damage to homes, cars and other property caused by weather related catastrophes so far this year. State Farm, the largest U.S. insurer of homes and autos, says that 2011 is likely to be one of the busiest years for catastrophe losses that the company has ever faced.
Up to the 23rd September State Farm had dealt with more than 970,000 claims covering hail, tornado, wildfire, tropical storm and hurricane damage from west Texas to Maine. The $5 billion figure is for all catastrophes occurring during 2011 and residual payments made on catastrophes from previous years.
“The unrelenting, widespread volatile weather continues to cause problems for our policyholders. Our claim teams have risen to the challenge and we are prepared with the necessary resources to respond. About 4,300 specifically dedicated catastrophe claim representatives have joined thousands of local claim professionals and agents at catastrophe sites across the country,” said Brian Boyden, State Farm Executive Vice President.
For a single insurer to face $5 billion in claims payments you would be forgiven for thinking that the capital markets may take some of that burden through the triggering of a catastrophe bond. In fact, State Farm has two cat bonds that we know of which are currently active. Merna Re II Ltd. which provides them with earthquake cover and so hasn’t been affected and the privately placed multi-peril Merna Reinsurance III Ltd. cat bond.
Merna Re III Ltd. is exposed to U.S. hurricane, winter storm, tornado and severe thunderstorm and wildfire but as far as we are aware has not been triggered. An unrated transaction which was placed with just a single ILS investment fund, Merna Re III is one of those transactions that it is hard to find any data on. Given that we haven’t heard of this being triggered we believe its safe to assume that it hasn’t been.
So State Farm will be calling on their reinsurers to reimburse their claims paid this year. A large and well structured multi-peril aggregate cat bond may well have afforded them some additional reinsurance cover this year and State Farm executives may well be kicking themselves that they didn’t repeat the much larger Merna Reinsurance Ltd. transaction when it expired in 2010. State Farm’s loss experience during 2011 may be enough to encourage them to tap the cat bond market for larger amounts of cover once again.
You can see details of all the Merna Re transactions in our Deal Directory.