Property Insurers Hit By Worst First Quarter in 20 Years
30 April 2017 - 3:29PM
Dow Jones News
By Leslie Scism
Hail, tornadoes and an ice storm turned the first three months
of 2017 into the most expensive first quarter in more than 20 years
for U.S. insurers.
The unexpectedly harsh weather is surfacing in insurers'
earnings. First-quarter underwriting results for Travelers Cos.
worsened year-over-year as catastrophe costs jumped 9% to $347
million. Allstate Corp. and others have warned about increased
storm-related claims ahead of their earnings reports, with a slew
of property-casualty insurers, including American International
Group Inc. reporting this week.
These companies insure millions of cars and homes across the
U.S., and some also insure businesses. Insurers are paying out for
weather-related vehicle crashes, shattered windows, and damage to
roofs of cars and homes from the hail and fallen tree limbs.
Some insurers have said the weather was more typical of second
quarters than the first three months of the year.
"We, like the broader industry, are experiencing historic levels
of weather-related losses and clearly seeing a troubling weather
trend," Marita Zuraitis, Horace Mann Educators Corp.'s chief
executive, told analysts in an April 25 earnings call.
She said the company is "keenly focused on ensuring that our
rate plan includes adequate increases to account for this
volatility."
The insured damage from all natural disasters in the U.S. in the
first quarter is currently estimated to total nearly $7 billion,
according to reinsurance specialist Aon Benfield. Of that, about $6
billion is from severe storms.
That makes this year's opening three months the most expensive
first quarter on record for the insurance industry in paying out
severe thunderstorm-related claims, the firm said. This year's
first-quarter cost compares with an average of about $1.5 billion
in such first-quarter insured losses from 2000-2016, Aon Benfield
said.
According to preliminary government data, there were 425
tornadoes from January through March, compared with 205 in the same
period in 2016, and an average of 93 in the same period for the
three years 2014-2016.
How much impact the bad weather will have on U.S. consumers'
insurance bills is unclear, but it is expected to add to the
pressure that already has caused a 14% increase since 2014 in the
average annual car-insurance premium, to $990, as insurers address
higher crash rates tied to distracted driving. The average
home-insurance premium is up 16% over the same period, to $1,315,
according to estimates by trade group Insurance Information
Institute.
Steve Bowen, a meteorologist with Aon Benfield, said favorable
atmospheric conditions and an abnormally warm Gulf of Mexico helped
fuel storm systems crossing the country. "Early season severe
weather outbreaks are not unprecedented," he said. "If the right
conditions exist, thunderstorms are going to occur."
He said April was "shaping up as another costly month" for U.S.
insurers.
To be sure, the first quarter is a traditionally lower-damage
period, partly because it doesn't typically include hurricanes.
Hurricane Katrina, which occurred in late August 2005, left about
$50 billion in insured damage in today's dollars, making it the
costlier-ever U.S. storm, the information institute said.
In addition, the unusually bad U.S. weather occurred as non-U.S.
catastrophes were below historical averages, according to Keefe,
Bruyette & Woods. Some insurers with large international
footprints, like Chubb Ltd., have reported lower year-over-year
catastrophe costs.
U.S. property-casualty insurers have surplus -- which basically
is assets minus liabilities -- of approximately $700 billion, a
record high, according to the industry trade group.
"It's not a balance-sheet event, and I would generally not
expect it to impact share buybacks of any of the major insurers,"
Barclays analyst Jay Gelb said.
Personal-lines insurers are typically at highest risk of losses
in the middle part of the June 1 to Nov. 30 hurricane season.
Colorado State University, one of the most closely followed
forecasters of hurricane activity, this year predicts a total of 11
named storms. Of those, four are predicted to become hurricanes and
two to be Category 3 or higher, with sustained winds of at least
111 miles an hour. This is below the 30-year average of 12 named
storms, including six hurricanes and two major hurricanes.
Write to Leslie Scism at leslie.scism@wsj.com
(END) Dow Jones Newswires
April 30, 2017 09:14 ET (13:14 GMT)
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