Tornado Losses in N.J., Conn., Ohio Could Top Those of Great Plains States

April 18, 2007

Most people associate tornado activity with the “Tornado Alley” of the Great Plains states. While this is true in terms of the sheer numbers of tornadoes and losses, surprisingly, catastrophe modeling shows that New Jersey tops the list of the states with the highest average expected, or modeled, insured losses from tornadoes.

New Jersey is followed by Connecticut, Massachusetts, Ohio and Rhode Island as the states with the biggest projected losses per 1,000 square miles from tornado and related weather events.

Tornadoes have occurred in all 50 states; however, the high average loss rates in these five states are affected heavily by insured property values in addition to the frequency of the storms, according to a special report issued by A.M. Best Co.

Tornado and related weather events were particularly costly in 2006, creating more than $8 billion in insured losses, the worst year on record. The first quarter of 2007 has just concluded with a preliminary estimate of 334 tornadoes, up 65% from the first quarter of 2006.

The new year began with a string of deadly tornadoes in the South. In the first three months of 2007, the Insurance Services Office (ISO) identified seven catastrophe events, three of which were classified as wind and thunderstorm events. As of the end of March, ISO issued estimates of $560 million in damages for two of the wind and thunderstorm events; no estimate had been issued yet for the events during the last week of March.

Tornadoes regularly take a terrible toll in lives and property loss. Insured losses have the potential to reach $10 billion in a 100-year event, or an aggregate annual 100-year loss of $20 billion or more. Nonetheless, tornado-related insured losses have had limited impact on the insurance industry from the standpoint of raising solvency concerns.

Of the 51 impaired insurers in A.M. Best’s P/C impairment study that have been identified as having failed due to catastrophe losses, only three companies had losses triggered by tornadoes and other related severe weather. Each of those impaired companies was a small insurer with a heavy concentration of risk in a limited geographic region. Importantly, all three firms had either no Best’s Rating or a Vulnerable (“B” or below) Best’s Rating. As far as current ratings are concerned, A.M. Best already considers a company’s exposure to tornadoes and other catastrophes in its rating methodology.

Source: A.M. Best

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