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Biggest U.S. property cat losses in 2006 were away from coasts

Property casualty insurers increasingly steered clear of the water out of fear of catastrophe losses during the past year. But while they were keeping a wary eye on the coasts in 2006, and escaped relatively unscathed in those areas thanks to a mild hurricane season, the industry racked up its biggest catastrophe losses in more land-locked states.

For 2006, the states where insurers reported the largest catastrophe losses included Indiana, Missouri, Tennessee and Kansas. Texas also made the top five in catastrophe losses.

The industry’s Insurance Services Office’s Property Claim Services (PCS) unit identified 33 catastrophe events in 2006. Together those events cost insurers an estimated $8.8 billion.

The 33 events caused insured property damage in 34 of the 50 states and the District of Columbia. Following are the states with the largest losses:

•Indiana – $1.5 billion;

•Missouri – $878 million;

•Tennessee – $873 million;

•Texas – $688 million; and

•Kansas – $601 million.

The catastrophe losses in those five states represented half of the total catastrophe losses in the United States for the year, according to PCS.

Losses from catastrophe events declined sharply in 2006 but were nonetheless at their sixth highest level since 1997. The frequency of catastrophe events rose last year to its second highest level in a decade.

PCS estimates that insurers received 2.27 million claims for damage to personal and commercial properties and vehicles in 2006. Personal lines claims accounted for 58 percent of the total, while commercial lines claims were at 9 percent, and vehicle claims at 33 percent.

The 2006 hurricane season produced only one storm of catastrophe proportions, Tropical Storm Ernesto, which caused close to $250 million in insured property damage.

The National Hurricane Center recently reported that a tropical system that formed in July was not appropriately named as a tropical storm. The storm formed on July 17 approximately 210 nautical miles southeast of Nantucket, Mass. It reached tropical storm strength with winds of 45 miles per hour later that day. It became extra-tropical the following day.

With that storm added to the count, the 2006 season included 10 storms. Five of them were hurricanes, with two reaching major hurricane status. The numbers reflect the long-term average for tropical systems.

In 2006, the third-quarter was quieter than the rest of the year. PCS originally reported that the estimate for insured property damage related to seven catastrophes in the third quarter tallied $971 million, at the time, the third lowest amount for the period in the past 10 years. However, PCS employs a resurvey process through which it measures any development of insured damage over time. As a result, the estimate for insured damage during the quarter has risen to a total of $1.251 billion due to an influx of claims.

Even with that updated information, the quarter still ranks as the third lowest in the last decade, following far behind the especially costly hurricane seasons of 2004 and 2005 and the terrorist attacks of 2001.

On the other hand, 2006 ended with six catastrophes identified by PCS in the fourth quarter. The frequency of events in that quarter tied the six events in 2002 as the most in any fourth quarter since 1998. The estimated insured property damage in the 2006 quarter ranks fourth highest since 1998 at $1.19 billion.

Three of the six events resulted from severe weather, including wind, hail, tornadoes and flooding. Two of the events were classified by PCS as winter storms, because the perils included freezing, snow and ice.

PCS also broke into new territory in the fourth quarter when it assigned a separate serial number for workers’ compensation claims that can be filed by rescue and recovery workers who toiled at the site of the World Trade Center in 2001.

ISO’s PCS unit defines a catastrophe as an event that causes $25 million or more in insured property losses and affects a significant number of policyholders and insurers.

Based in part on the huge drop in insured catastrophe losses, which went from $62 billion in 2005 to just $8 billion in 2006, Dr. Robert Hartwig, president and chief economist of the Insurance Information Institute, predicts property/casualty insurers should be able to build on the momentum of 2006 to deliver another profitable year in 2007.

Hartwig noted that 2006 was a record year for the P/C industry, with net income after-taxes at nearly $60 billion, according to the latest estimates. The industry also delivered its best return on equity in about 20 years, he said at the 11th annual Property/Casualty Joint Industry Forum.