US tornadoes could cost market $7bn

The swathe of tornadoes and severe convective storms that tore across Kentucky and neighbouring states on 10/11 December could cause insured losses of up to $7 billion, according to early unattributed industry assessments.

According to initial analysis by Guy Carpenter, such a figure would near the level of loss associated with the Iowa and Illinois derecho in 2020, but is likely a more aggressive assessment given the market’s early knowledge of the event.

Indeed, the broker noted that most vendors do not issue severe convective storm (SCS) loss estimates due to the high granularity of damage footprints, especially with tornadoes, which can make accurate loss estimates hard to determine.

Once such to do so has been Karen Clark & Company (KCC), whose initial industry loss estimate is just below $3 billion on an industry basis, inclusive of tornado, straight-line wind and hail losses. Exposure includes auto, residential, commercial and industrial lines.

At present, while damage assessments are ongoing, a figure in the mid-range would appear to be a more credible estimate – with rating agency  Fitch suggesting that insured losses could reach just this point, providing a $5bn figure.

It added that losses are likely most concentrated within large homeowner insurance underwriters that have effective claims resources and are well capitalised to absorb short-term volatility from outsized catastrophic events, with State Farm, Allstate, Liberty Mutual and Farmers all having the greatest market shares:

“We expect the tornadoes to be more of a primary insurance event rather than reinsurance, given the higher retention level of the major nationwide insurers exposed to this event. 
“However, reinsurers will be impacted by aggregate covers given the accumulation of losses this year.”

Fitch said it was unusual to have this type of weather-driven event in December, which is historically the least costly month of the year for US convective storm insured losses, citing climate change as a potential factor, and pointing out that these latest losses will almost certainly lead to a record year for US natural catastrophe losses:

"The tornadoes will likely drive insurance industry natural catastrophe losses to the largest annual total in the US since the 2017 record year (approximately $130 billion)," it added.

This will add to reinsurers' impetus for rating rises at the important forthcoming 1/1 renewals  and beyond as they absorb losses from another unusual weather event and react to concerns about the negative impact from climate change, Fitch said.

The powerful twisters, which weather forecasters say are unusual in cooler months, also destroyed a candle factory and the fire and police stations in a small town in Kentucky, ripped through a nursing home in neighbouring Missouri, and killed at least six workers at an Amazon warehouse in Illinois.

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