US insurers prepared for rough hurricane year
Despite predictions of a rough hurricane season ahead for US insurers, the sector looks well prepared for such an eventuality according to AM Best, which notes that the industry’s collective balance sheet is hitting record levels even after Superstorm Sandy.
Some forecasts suggest that 2013 could see three times as many severe hurricanes make landfall in the US. But a report by AM Best suggests risk management practices implemented by the insurance industry in recent years mean it should be able to cope.
During 2012, there were 19 named storms, 10 hurricanes and two major hurricanes (Category 3 or higher). The general consensus for 2013 seems to be fewer named storms but an increased number of higher intensity hurricanes. In 2012, only 20% of hurricanes were Category 3 or higher whereas 2013 predictions are for 40%-50% of hurricanes to be Category 3 or higher.
It said that while Superstorm Sandy tested the effectiveness of risk management efforts, the industry’s balance sheet still held up well, with policyholders’ surplus increasing by 6.3% to a record $598.4bn as of December 31, 2012.
In addition, it noted that many P/C writers are beginning to use data collected from Sandy to revise underwriting practices and implement numerous risk management initiatives to address adjustments to catastrophe models.
“There is the potential for increased losses,” the rating agency said in a report. “But regardless of the predictions for catastrophic activity and the associated uncertainty, the P/C industry continues to engage actively in risk management, which has been evident over the past several years.
“Despite the volatile catastrophic activity witnessed across the US, there have been a limited number of rating actions related to single, severe catastrophes. Conversely, the aggregation of losses from multiple events has had more of a rating impact.
“Carriers continue to take action on underwriting, pricing and exposure throughout the country to address not only severity but frequency. As a result, AM Best believes the industry as a whole is well prepared to address catastrophic activity.”
