The growing frequency and severity of convective storms across Southern US states has become an “evolving situation” for re/insurers, as these events are continently hindering insurers’ ability to achieve effective diversification of their portfolios.
In a new commentary from global ratings agency AM Best, the company highlights that re/insurers rely on geographic diversification in underwriting to maintain a stable, profitable portfolio.
But, this method has proven to be more challenging within recent years due to the growing number of convective storms, as well as the increased intensity of these storms, and the wider geographic areas where storms are occurring.
Recent convective storms – severe thunderstorms, hailstorms, tornadoes, derechos – that spread through Texas, Louisiana, Arkansas and Mississippi hit Gulf Coast and nearby states historically impacted by hurricanes, adding to the potential perils that can threaten the results of property writers in those states.
According to catastrophe modeling firm Karen Clark & Company, estimates for these storms that began on June 10 and lasted around ten days, are to be around $5.5 billion, an amount which is typically more associated with hurricanes, rather than inland storms.
The loss estimates included insured damage to residential, commercial and industrial properties, in addition to automobiles.
Christopher Graham, senior industry analyst, Industry Research and Analytics, AM Best, commented: “These storms, which struck during hurricane season, only adds to the hazards insurers face during these months and lessens the degree of risk diversification in the portfolios of property insurers.”
Moreover, Gallagher Re previously reported that severe convective storms were the largest contributor to global insurance and reinsurance market losses due to catastrophe events in Q123.
Best’s commentary also includes the insurance groups or companies writing property in Arkansas, Louisiana, Mississippi and Texas with the greatest geographic concentration in each state. These entities face greater potential of materially impacts from these storms, although State Farm is still the largest writer of overall premiums in each state.
Best states that this is unsurprising as national insurers cover most of the property business written in states countrywide, diversifying their portfolios by doing so.
Convective storms through June 2023 have been larger than those seen in H122.
Best concludes by noting that considering the impact of the storms that hit this region in H123, the year is shaping up to be a “difficult one for insurers as peak hurricane season looms.”
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