AM Best Sees Tornado Losses as Manageable for Insurers

Analysts at ratings firm AM Best said they expect the insured losses from the tornadoes that devastated central and southern U.S. last weekend will dampen underwriting results for insurers but that insurers will be able to absorb them, even though supply chain and inflation challenges may exacerbate losses.

AM Best said insured losses are likely to be concentrated in the commercial multiperil and homeowners lines, with some losses borne by auto physical damage as well. Also, most of the losses should be limited to primary insurers.

Catastrophe modeling firm Karen Clark & Company has estimated that the insured loss from the tornado outbreak will be about $3 billion. This KCC estimate includes privately insured damage to residential, commercial, and industrial properties and automobiles.

The late-season tornado outbreak affected at least six states, including Arkansas, Illinois, Kentucky, Mississippi, Missouri, and Tennessee. KCC notes that there have been 60 reports of tornadoes and over 350 reports of damaging wind gusts. The death toll from the tornadoes has reached 80, with many people still missing, according to the Federal Emergency Management Agency (FEMA).

Insured Loss From Tornado Outbreak Estimated at $3 Billion by KCC

KCC said the most significant damage has been observed in Kentucky.

AM Best noted that losses in Kentucky may be spread out among insurers in the Kentucky market, which it describes as not concentrated. State Farm (19.6%) and Kentucky Farm Bureau Group (18.2%) lead in market share for the impacted commercial and personal lines. Other carriers in the top five are Liberty Mutual (8.8%), Allstate (5.6%) and USAA (4.8%).

While most of the losses may be limited to primary insurers, AM Best said that the growing frequency of tornadoes and such events will “lead to insurers re-examining their reinsurance protection and to reinsurers becoming more cautious as they look at demand and risk, which may be reflected through pricing, limits, deductibles, and other underwriting tools.”

AM Best added that his tornado event is an outlier in terms of insurance events for December, which tends to experience low weather-related losses.

AM Best detailed its viewpoints regarding the tornado outbreak in its Best’s Commentary, “Tornado Outbreak Adds to 2021 Insurance Losses, but Appears to Be Earnings Event.”

Fitch Ratings offered a similar view, saying the tornadoes are expected to generate significant economic and insured losses but are likely to be an earnings, not a capital, event for individual property/casualty insurers and reinsurers. Fitch said the insured loss from the tornadoes could rival the $5 billion insured loss from the U.S. Midwest derecho event in August last year and will likely drive insurance industry natural catastrophe losses to the largest annual total in the U.S. since the 2017 record year (approximately $130 billion).

Photo: Photo: In this photo taken by a drone, buildings are demolished in downtown Mayfield, Ky., on Saturday, Dec. 11, 2021, after a tornado traveled through the region Friday night. A monstrous tornado killed dozens of people in Kentucky and the toll was climbing Saturday after severe weather ripped through at least five states, leaving widespread devastation. (Ryan C. Hermens/Lexington Herald-Leader via AP)