US severe weather & tornadoes may drive Q1 large cat losses above $10bn

The severe convective weather, thunderstorms, large hail and tornadoes that affected the United States this week is expected to aggregate to drive hundreds of millions of dollars in insured losses, according to Aon’s Impact Forecasting.

The catastrophe risk modelling and meteorological unit of the insurance and reinsurance broker highlighted the expectation this could be the most costly severe weather outbreak of the year so far in the US.

But also pointed out that the severe weather season is really only just beginning, with tornado and hail count numbers seemingly relatively high for an outbreak at this time of the year.

The severe weather outbreak was most acute in parts of Texas, Louisiana, Mississippi, and Alabama, with a New Orleans tornado likely to be the biggest contributor to the insurance and perhaps reinsurance market loss.

Aon’s Impact Forecasting said; “Damage assessments remain ongoing across Texas, Louisiana, the Deep South, and the Midwest following this week’s storms. Total economic and insured losses were each individually anticipated to reach into the hundreds of millions (USD).”

Our sources say to expect industry losses to be above $350 million from the severe weather this week, while some point to losses approaching the billion dollar mark.

Added to other larger industry loss events from weather and natural catastrophes in the first-quarter of 2022, it seems the nat cat large loss burden is set to reach around the $10 billion mark.

Out of all the Q1 2022 catastrophe events, it appears the combined European windstorm outbreak in February is likely to be the largest contributor.

Storms Dudley (Ylenia) and Eunice (Zeynep) are estimated to drive insurance and reinsurance market losses as high as US $5.5 billion alone.

But with other European storms also likely to add hundreds of millions more, it’s quite possible the European windstorm season industry loss will be close to the upper-end of those estimates.

The Australian flooding is also expected to be more costly than currently estimated.

The Insurance Council of Australia (ICA) now estimates around A$2.5 billion, but that is simply an estimate based on the number of claims and our market sources say the cost of these floods is likely to end up between US $2 billion and $3 billion.

The recent earthquake off the east coast of Japan is estimated to result in an industry loss of between $2 billion and $4 billion, by Verisk, a range that seems entirely reasonable at this time.

Even taking mid-points of estimates, plus what our sources are saying on the Australian floods, as well as a $500 million estimate for the severe convective US storms gets you to $10 billion, just from these four events around the globe from the first-quarter of 2022.

Of course, that is not all the weather and catastrophe losses from Q1 2022, there will be additional losses to come and it could even get the industry close to average, or perhaps just above, for a first-quarter.

Last year, analysts at investment bank Jefferies said that the long-term average for Q1 catastrophe and severe weather losses was close to $15 billion.

With some loss creep, which seems inevitable in many cases these days thanks to inflationary factors, plus the rest of the world’s weather and nat cat insurance claims from smaller events, it’s easy to see the Q1 2022 total rising to that level.

For the large insurance and reinsurance companies of the world, they have of course got exposure to Ukraine and Russia to deal with as well this quarter, although the industry loss from that crisis is unlikely to be clear for some time to come.

But the first-quarter of 2022 is looking likely to be quite costly, for some at least that have broad catastrophe and Ukraine invasion-related exposure.