Rating agency Moody's says second-quarter earnings among P&C carriers are likely to be pressured by losses paid on the May 20 tornado in Moore. Okla.
In a report issued today, Moody's says the monster tornado—rated EF5 on the Enhanced Fujita Scale, with winds of around 200 mph—tracked through both residential and commercial areas of the city, spelling potentially significant losses for both personal and commercial property insurance lines.
The losses are credit negative for P&C insurers, says Moody's.
However, despite the tornado's immensity—it was over two miles wide—Moody's says the tornado left a limited footprint making it “difficult to determine which insures will bear the brunt of insured losses.”
Catastrophe modelers' insured-loss estimates run between $2 billion to more than $6 billion.
Moody's says at the top of the market share list for Homeowners insurance is State Farm, followed by Farmers, Liberty Mutual, Allstate, USAA, Oklahoma Farm Bureau, Shelter Mutual, AAA Northern California, Nevada & Utah, Travelers and Hartford.
On the commercial property side, Travelers leads in market share, followed by Liberty Mutual, CNA, Farmers, Zurich American, AIG, Assurant, Federal Insurance Co., Shelter Mutual and Hartford.
Moody's says it expects “greater-than-normal damage to commercial structures.”
As of Friday, State Farm says it received about 6,700 claims—property and auto combined—and Farmers put its number at 1,900—65 percent property—adding that it expects more.
Severe convective storms, including tornadoes, have amounted to significant accumulated losses for the P&C industry within recent years, says Moody's. Last year, insures suffered $15 billion in losses from these storms and more than $22 billion in 2011. Two of the costliest connective storm events occurred in 2011 with multiple tornadoes in Tuscaloosa, Ala., causing $7.5 billion in insured losses and Joplin, Mo., producing $7 billion in losses.
While earnings will take a hit from the Moore tornado, Moody's believes “underwriting margins will be more resilient compared to 2010-2011” because of continued single-digit rate increases and more restrictive terms and conditions. As part of their improved underwriting strategy, carriers have also non-renewed less profitable or loss-exposed business.
Reinsures have minimal exposure, notes Moody's, because catastrophe reinsurance protection “is typically structured to respond to relatively infrequent, high severity events such as hurricanes.” Tornadoes could trigger coverage for those primary carriers that purchased aggregate reinsurance coverage against annual loss accumulations from frequent weather events. However, coverage is expensive and does not “figure prominently in insurer risk management programs.”
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