|Title:||United States property and casualty catastrophe losses by segment in dollars in a year-to-year comparison of first half 2010 to first half 2011|
Start of full article - but without data
Losses By Segment
(HX 2010 vs. HX 2011)
Personal Commercial Lines Lines U.S. Reinsurance Industry
2010 $X.X $X.X $X.X $XX.X 2011 $XX.X $X.X $X.X $XX.X
Source: A.M. Best Co.
Note: Table made from bar graph.
A CRIPPLING BLOW: The tornado that struck Joplin, Mo., this year is the largest insurance event in state history. It also symbolizes the catastrophic weather that hit the Midwest in 2011 and left some property carriers facing heavy losses.
Rick Means said he might feel more pressed to take action if he thought an internal variable issue was creating volatility in Shelter Insurance Co.'s book of homeowners business.
Means, an executive vice president at the Columbia, Mo.-based regional property insurer, explained that the company's underwriting rules are right where they need to be, and the noncatastrophe loss ratio is also in a good place. For now, Shelter's growth mode on the property side consists of geographic areas where the company doesn't already have pockets of storm exposure.
"The volatility that we're dealing with is just these storms," Means said. "What we have to ask ourselves is whether this is going to be the pattern going forward."
A sharp upswing in catastrophic weather events this year has driven up loss claims across the industry's property/casualty segment. That spike, coupled with a difficult economic climate, is weighing heavily on carrier rate strategy.
"We're seeing across the board where some companies are taking some pretty aggressive rate increases on homeowners" A.M. Best Assistant Vice President Jeff Mango said. "It's just a matter of whether the market will "allow that."
An A.M. Best survey of property/casualty writers released in late August estimated $XX billion in pretax catastrophe losses for U.S. insurers and reinsurers in the first haft of 2011. That midyear mark eclipsed 2010's estimated losses of $XX.X billion, which had marked a XX% increase over 2009, according to A.M. Best.
Hurricane Ike's Impact
Mango said pricing shifts in the homeowners segment were noticeable following Hurricane Ike in 2008, when that storm's tail redefined perceptions of inland exposure in the Midwest.
"We saw companies taking single- to double-digit rate increases. So it's been going on for the past couple of years," Mango said. "This just kind of put it into a new light."
Tornadoes and storms have dealt a particularly harsh blow across the Midwest and Southern regions of the country this year, leaving Shelter and other regionally focused carriers to contend with increased volatility in a core geographic footprint.
Missouri, Arkansas, Oklahoma and Tennessee comprised XX.X% of $X.X billion in direct premium that Shelter generated last year, according to BestLink, which provides online access to A.M. Best's database of insurance information. Shelter maintained a policyholders' surplus of $X.X billion through the first six months of 2011.
Means anticipates that Shelter's 2011 storm losses will be XX% to XXX% higher than last year. A significant loss driver involved the May XX tornado that destroyed the town of Joplin, located in Shelter's home state of Missouri.
"Right now my guess is that will turn out being between a $XX million and $XXX million storm for Shelter," Means said. "That probably won't be the largest in our company's history. That was the hailstorm back in 2006."
More importantly, Means said the Joplin storm will exceed Shelter's catastrophe reinsurance level and generate a reinsurance claim, something that hasn't happened in the company's catastrophe program since March 2006.
He said it appears that Shelter will seek rate increases as a way to offset that volatility trend line, but that strategy would be implemented on a state or regional basis. The feedback he's received from his distribution network is that midsize and rural markets are hardening in places, yet soft market conditions still exist in larger metropolitan areas.
"I think for years the homeowners product has been underpriced," Means said, referring to industrywide levels. "You just wonder it" the market can handle the rate increases that it's going to take to put the homeowners market on a profitable level where companies want to write it again."
Loss Milestones Evident
Means is far from alone in his trepidations. Other regional carriers working within more-defined geographic footprints face similar pressures.
Madison, Wis.-based American Family Insurance, which writes in XX states, said storm and catastrophe losses surpassed the $X billion mark in early August, marking the third time in five years that milestone has been reached.
As of Sept. X, American Family estimated claims payments of $XXX million related to the Joplin tornado.
State Auto Financial also encountered a geographic concentration of losses during a storm-tossed second quarter. In an August earnings call, Chairman, President and CEO Bob Restrepo discussed a second-quarter net loss of $XXX.X million and a combined ratio of XXX on a GAAP basis. Catastrophe losses accounted for XX.X% of a total loss ratio of XXX. Restrepo further explained that XX% of the catastrophe losses were concentrated in Tennessee, Missouri, Ohio, Texas and Alabama. The XX,XXX claims filed during that second quarter were nearly double the previous quarterly record of XX,XXX claims that followed Hurricane Ike.
Joel Brown, vice president of standard lines for State Auto, said the industry's homeowners segment is at a critical juncture.
"We've got to start questioning our pricing, our deductible strategy, our policy conditions, our current predictive models and really the areas where we choose to write business," Brown said.
Brown said that State Auto has been active in getting rate over the past three years at levels "probably higher than the market"
He also said weather is beginning to dictate where the company will operate. State Auto has pulled out of homeowners markets in Rhode Weather is beginning to dictate where [State Auto] will operate.
Island, Massachusetts, Oklahoma and Florida.
Brown said the firming of market prices will depend on the rate approach that companies take, and whether conditions that have played out over the past six months to XX years are the new normal.
"If that's the case, then obviously you're not going to be spreading your wind and hail losses over a long period of time," Brown said. "And that results in higher rate indications and higher rate actions."
Grange Insurance, a mutual based in Columbus, Ohio, is also on course for a record-setting year.
John Ammendola, president of personal lines at Grange, said that while volatility is far from a new element in the homeowners segment, the frequency of natural catastrophes is clearly on the rise.
"The way the weather systems are changing seems to be putting more of that depression on the Midwest and the areas in our footprint, which can't be ignored," Ammendola said.
Ammendola has concerns that volatility is getting worse, not better. In terms of managing that aspect, Ammendola said Grange already had deployed a longer-term, multifaceted approach that involved changes in contracts, coverages, territory restrictions, rate increases, reinsurance and agency management.
"As part of the rate strategy we deployed rate-capping tools to mitigate the shock that it might create on the customers and agents who serve them" Ammendola said.
Extrapolating those increases over time served the added purpose of making Grange's pricing more predictable and stable from the agents' perspective, Ammendola said.
The approach was first rolled out in Georgia in 2010, and has since been deployed in the XX Midwestern and Southern states in Grange's book.
He said the multitiered approach can be used regardless of market conditions.