2011: A Year to Remember

By Gary Kerney, Assistant Vice President, ISO Property Claim Services

We will remember 2011 as a year of unprecedented international catastrophe activity. Here in the United States, PCS declared 30 catastrophes that, based on its current estimates, caused more than $32 billion of insured property damage and resulted in more than 4.8 million claims. Those results rank 2011 with the third largest number of catastrophes since the year 2000 and the second largest insured loss, following the $62 billion devastation of 2005 primarily from Hurricanes Katrina, Rita, and Wilma. The following table shows the total dollar loss and frequency of catastrophes since 2000.

Year

Total Dollar Loss

Frequency

2000

4,570,000,000

24

2001

26,548,500,000

20

2002

5,850,000,000

25

2003

12,885,000,000

21

2004

27,490,000,000

22

2005

63,301,200,000

24

2006

9,238,000,000

33

2007

6,710,000,000

23

2008

27,045,000,000

37

2009

10,570,000,000

28

2010

14,315,000,000

34

2011

32,470,000,000

30

Total

239,992,700,000

321

PCS estimates

PCS defines a catastrophe as “an event that causes $25 million or more of insured property damage and affects a significant number of policyholders and insurance companies Most people are familiar with the $25 million threshold, but the second part of the definition is also very important. There’ve been a number of events where the insured loss exceeded $25 million, but PCS didn’t assign a serial number. That’s because the event involved a limited number of insured losses that didn’t meet the second part of the definition requiring an effect on a significant number of policyholders.

PCS also estimates the total insured loss associated with each catastrophe. PCS reports the insured loss for each state named in the catastrophe definition along with the number of claims in each state for personal, commercial, and vehicle losses and the average loss payment for each line. Estimates include the insured loss to structures, contents, time element (business interruption or additional living expense), vehicles, boats, and some inland marine risks. (PCS estimates don’t include vehicle collision losses, such as those that may occur during a winter storm.)

The first estimate issued by PCS is the preliminary estimate. If that estimate is $250 million or more, PCS resurveys affected insurers for up-to-date loss information. PCS publishes the results of the resurveys every 60 days until it determines it has reached a final estimate. At that point, the resurvey process ends.

Hurricane activity

Hurricanes contribute significantly to the overall insured loss in a given year. In 2011, Hurricane Irene and Tropical Storm Lee affected several states. Together, those tropical systems combined to cause estimated insured property damage of $4.8 billion. And it could have been worse. Seasonal forecasters, including the teams at Colorado State University, Tropical Storm Risk in London, Weather Services International (owned by the Weather Channel), and the National Oceanic and Atmospheric Administration (NOAA), generally predicted up to 19 named storms. Indeed, there were 19 named storms in 2011. Seven became hurricanes, with three of those reaching major hurricane status (Category 3, 4, or 5). Fortunately, Irene was the only hurricane to make landfall in the United States, and Tropical Storm Lee was primarily a rain event. As I see it, the more hurricanes that form and roam the Atlantic Basin, the greater the odds that the United States will suffer the effects of one or more devastating tropical cyclones. And the monetary costs will be substantial. 

The next table shows the effect of hurricanes compared with all other catastrophes since 1950. The numbers in parentheses indicate the number of events in that category.

Event

Insured Loss

Hurricane (89)

$140,856,445,790

Wind and Thunderstorm Event (1275)

$144,680,197,458

Winter Storm

$27,453,656,159

Fire – Other

$20,050,753,604

Earthquake

$13,964,150,000

Wildland Fire

$7,207,348,000

Tropical Storm

$4,604,320,000

Riot

$970,250,000

Water Damage

$300,000,000

Utility Service Disruption

$180,000,000

Volcanic Eruption

$27,000,000

Total Insured Loss (1,628)

$360,319,121,011

Catastrophe losses

In 2011, the National Hurricane Center named 40 of the 50 states and the District of Columbia in at least one catastrophe designation. Eight states — Texas, Alabama, Missouri, Tennessee, North Carolina, Kansas, Ohio, and Illinois — suffered insured losses of at least $1.25 billion and up to nearly $4 billion. Over the years, catastrophes have taken a toll, and the ten states with the largest catastrophe-related losses are  Florida ($52 billion), Texas ($40 billion), Louisiana ($35 billion), New York ($26 billion), California ($24 billion), Mississippi ($17.5 billion), Alabama ($10 billion), Oklahoma ($10 billion), Missouri ($9 billion), and North Carolina ($9 billion).

Some of the largest catastrophes on record — including Hurricane Katrina, the terrorist attack on the World Trade Center, Hurricane Andrew, and the Northridge earthquake — have occurred in states that make up the top ten. In 2011, catastrophes included the tornado and severe weather outbreaks in April and May that particularly affected Alabama and Missouri. 

A year to remember

I began this article noting the effect of catastrophes around the world. But in the United States, 2011 was also a notable year. From 1989 to 1999, 13 catastrophes caused more than $1 billion of insured damage, for an average of one catastrophe per year causing on average $4.5 billion of insured damage. From 2001 to 2010, 30 catastrophes each caused damage in excess of $1 billion for an annual average of $3 billion per catastrophe, causing on average $14.5 billion of insured loss. In 2011 alone, catastrophes averaging $7 billion caused more than $23 billion of insured damage.

The estimated loss figures from PCS represent insured property only. Recent catastrophes, however, have had more far-reaching effects. Insured losses now include coverages such as workers comp, health and life insurance, mortgage insurance, and, most recently, contingent business-interruption coverage.  The effect of catastrophes on insurers is growing not only because of increasing population and building values but also because of costs associated with coverages never before touched by catastrophe events. It will be very interesting to see what’s in store for us in 2012 and the years ahead.