Quiet Atlantic Hurricane Season Means Least Insured Losses Since 2006

Growing incidence of other catastrophes – such as tornado, hail and wildfire events – will moderate this year’s gains, but the insured losses could remain within $11 billion, compared with the last two years’ figures each of over $33 billion.

Miami from the air.

Hurricane Raymond, a category 3 hurricane threatening the Mexico coast this morning, provided a reminder that the hurricane season isn’t over. And as the anniversary of Hurricane Sandy approaches, insurers couldn’t be blamed for crossing their fingers. However, the statistically most active part of the season has passed, and if no major events develop before the end of November, 2013 will be the least expensive year in terms of insured losses since 2006, according to the Insurance Information Institute (I.I.I.).“When you look at the totality of catastrophe incidence this year, it’s running far below the prior two years,” observes Robert Hartwig, president of the I.I.I.. “This is a win/win situation in that both insurers should expect margins and ROE to improve in 2013, but I’m sure that property owners, both personal and commercial, will be happy to see a respite as well.”

Robert Hartwig, Insurance Information Institute

Robert Hartwig, Insurance Information Institute.

Strikingly, 2013 is the first Atlantic hurricane season in 11 years that hadn’t delivered a single hurricane by the month of August. Two category 1 hurricanes had arrived by mid-September: Hurricane Manuel, which petered out in the middle of the Atlantic; and Hurricane Ingrid , a category 1 hurricane which made landfall in Mexico as a tropical storm. Raymond, as a category 3 is the first major hurricane to affect the Western Hemisphere in 2013, but is a Pacific hurricane, and as such unlikely to cause significant insurance losses.

Catastrophe losses in 2011 were approximately $33.6 billion, and about $35 in 2012, according to Hartwig. This year is on track to result in $11 billion or less.

Among the reasons this year’s catastrophe results are only likely to be the best in seven years is because of events other than hurricanes, according to Hartwig. Thunderstorm events – which include tornadoes and hailstorms – are responsible for the majority of 2013 losses. The Moore, Okla., tornado in May 2013 alone resulted in losses of $1.6 billion.

Events other than hurricanes have also driven up catastrophe losses of previous years, as part of a longer-term trend, according to Hartwig. For example, 2011 saw record tornadoes and large-scale hail events. A cyclical tendency toward drought in the United States and increased property development are contributing factors. “The five years from 2008 to 2012 were the most expensive in terms of thunderstorm-related losses,” he elaborates. “Nowadays, modest fires, such as those we saw in Colorado this year and Texas last year, produce half a billion dollars in insured losses.”

Human Impact

Hurricane Raymond, as is typical with Pacific hurricanes, is unlikely to make landfall on the continent. However, it is still likely to produce heavy rainfall capable of causing flashfloods and landslides. While no tropical storm this year so far has caused major insurance losses, they have still exacted a tragic human cost. Tropical Storm Andrea, whose rains the entire Eastern Seaboard, was associated with four deaths and the displacement of over 1000 people in the United States. The mid-September clash of Pacific Manuel and Atlantic Ingrid caused the deaths of over 100 people in Mexico, as well as evacuations or displacements of well over 100,000 people, accompanied by incidents of looting.

Over the past two weeks, a major earthquake in the Philippines and Tropical Cyclone Phailin, a category 5 cyclone that made landfall in India as a category 3, are likely to result in very little in the way of private insured losses, according to Hartwig.

“A storm coming ashore as a 3 on the Saffir-Simpson scale anywhere in the United States would have produced losses of at least $10 billion to $20 billion,” Hartwig notes. “The best example of this sort is the 2010 Haiti earthquake: over 200,000 people were killed, but the amount of private insurance was negligible. It was one of the great human tragedies and the country still hasn’t recovered.”

Anthony R. O’Donnell // Anthony O'Donnell is Executive Editor of Insurance Innovation Reporter. For nearly two decades, he has been an observer and commentator on the use of information technology in the insurance industry, following industry trends and writing about the use of IT across all sectors of the insurance industry. He can be reached at [email protected] or (503) 936-2803.

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