OLDWICK, N.J. (BestWire) - Small property/casualty insurers and those with limited geographic reach may face pressure on finances and rates from this record year for tornadoes, insurance experts and industry watchers said.

More than 900 tornado events have been reported so far this year, compared with the three-year average of 539 from the months of January through May, according to the National Oceanic and Atmospheric Administration. The three-year average for twisters in a calendar year is 1,159.

"The past quarter may have been a record quarter, and this year could be a record year in terms of property damage caused by storms," said Robert Klein, director of the Center for Risk Management and Insurance Research at Georgia State University.

The high frequency of storms bringing hail, ice and tornadoes is applying more pressure than the severity of any particular storm, according to company representatives and brokers. While tornadoes can strike over a broad geographic range, "They really don't tend to leave a wide swath of high-value destruction," said Alexandra Glickman, a vice chairman and managing director for insurance broker Arthur J. Gallagher (NYSE: AJG).

The Oklahoma Farm Bureau Group saw 11,000 wind and hail claims in all of 2007; for the first four months of 2008, that figure is 13,000, said Richard Newberry, vice president of claims. However, only one tornado -- which struck two counties in early April, generating 4,800 claims for $20.3 million -- led the insurer to dip into its reinsurance, he said.

"This is likely the most costly spring we've ever had," said Joe Moseley, vice president of public affairs for Shelter Insurance, a midsize insurer that writes in 14 states mostly in the South and Midwest. The company had to touch its reserves "a little," Moseley said, but its geographic reach and multiple lines of business are forestalling any significant impact.

U.S. property/casualty insurers are expected to pay homeowners and businesses an estimated $3.35 billion for first-quarter property losses resulting from eight catastrophes, including seven caused by severe weather, according the Insurance Services Office's Property Claim Services division. The loss is the largest such figure in the past decade. Personal lines claims accounted for 56% of the loss, commercial lines 31%, and automobile loss the balance (BestWire, April 29, 2008).

In six states -- Colorado, Iowa, Kansas, Nebraska, Oklahoma and Texas -- there is a 69% probability that losses will exceed $2 billion and a nearly 20% probability that losses will exceed $4 billion, said Loretta Worters, vice president of the Insurance Information Institute.

"It's a major increase, but not so huge that it would make companies re-evaluate tornado risk," Worters said.

In 14 recent meetings with insurance underwriters, tornadoes have not been a major concern on the agenda, Glickman said. Even the tornado that tore through downtown Atlanta on March 14 and caused more than $300 million in insured losses did not generate a widespread impact on the industry.

"It was destructive, but it wasn't catastrophic," Glickman said.

While windstorms can occur at any time, the tornado season -- typically defined as running from April to November -- is still new. Companies that could find themselves in trouble would tend to be small insurers without sufficient reinsurance or that have a large exposure in a single geographic area or line of business, Worters said.

Also, a surge in hurricane activity this year -- after two years of quiet hurricane seasons -- could combine with the tornado losses to cause trouble for small and middle-market insurers, said Al Tobin, managing director and property practice leader for Aon Risk Services (NYSE: AOC).

Colorado State University's hurricane forecasting team has forecast 15 named Atlantic storms, eight hurricanes and four intense hurricanes to form during the season. The chance of a major hurricane - categorized as a 3, 4 or 5 on the Saffir-Simpson Hurricane Scale - making landfall in the United States in 2008 is 69%, compared with a 52% average over the past century, according to CSU's Tropical Meteorology Project (BestWire, April 9, 2008).

"If there are hurricane losses, then I would see pressure," Tobin said.

People do get focused on hurricanes but tornadoes, which occur over a much wider area, can have a larger cumulative impact, Klein said. He said many insurers who have sought to minimize their exposure in coastal areas have looked to the interior of the country for expansion, including the Midwest and Upper Plains states -- ripe tornado country.

For the largest U.S. property/casualty insurers, even this record year is a regular part of doing business, said Mike Siemienas, a spokesman for Allstate (NYSE: ALL).

While continually reassessing risk exposure, "It would be highly unlikely to see dramatic change in how much business we write in those areas," State Farm spokesman Jeff McCollum said.

Back to Insurance Reform - National