BEST’S BRIEFING
U.S. Property/Casualty
Our Insight, Your Advantage.
January 23, 2013
The results
showed the
industry’s
improved risk
management
practices.
Superstorm Sandy Update:
Minimal Ratings Impact Expected
I
nsurance industry losses from Post-Tropical Cyclone Sandy now are expected to
approach $25 billion, but based on loss estimates to date, property/casualty insurers
remain resilient and hold sufficient capital to effectively absorb these losses. The
results from the storm provide a testament to the improved risk management practices
in the industry over the past decade.
A.M. Best has seen minimal ratings impact thus far, with just one change in a ratings outlook that was only partially attributable to the storm. Much still is being learned about the
storm losses, and A.M. Best will continue to evaluate all ratings as year-end 2012 earnings
are announced and financial statements are filed for material changes from initial estimates.
Based on current information, minimal ratings impact is anticipated across all segments:
personal, commercial and reinsurance.
The split of the industry losses now appears to be about one-third to personal lines
insurers and two-thirds to commercial lines insurers, with a greater share of the burden
falling on primary insurers than on reinsurers, given the increased retentions evident
in recent years. The split between personal and commercial lines losses is somewhat
unique compared with other large, catastrophic weather events because of the significant business exposure in the affected regions.
Personal Lines: One surprise of the storm was the extent of flooding caused by the
coastal surge, and the resulting losses to automobiles along the coast. Auto losses from
the storm now are estimated at about $3 billion. Personal marine losses were also significant. Local insurers in the Mid-Atlantic region, including smaller mutuals, appear to
have fared reasonably well, despite their concentrations in the affected region.
Analytical Contact
Anthony Diodato
+1 (908) 439-2200 Ext. 5704
Anthony.Diodato@
ambest.com
Editorial Management
Brendan Noonan
Commercial Lines: Commercial lines insurance losses are likely to be large and
spread across many domestic and international insurers. Although insurers were quick
to place sublimits on business interruption exposures in the aftermath of 9/11, A.M.
Best believes a portion of this “throw in” coverage has come back into the market since
that time. The take-up rate for additional coverage limits also may have increased as
prices softened. While such losses are difficult to measure now, A.M. Best believes a
number of business interruption and contingent business interruption claims are likely
to reach their limits. Potential claimants include international airports; commercial
airlines; hotels; restaurants; the New York City Transit Authority; the Port Authority of
New York and New Jersey; various global financial institutions and exchanges, including the New York Stock Exchange and New York Mercantile Exchange; museums; utility
companies; broadband and wireless companies; residential apartment buildings; and a
vast number of local businesses. As expected, the focus of losses along the East Coast
shoreline resulted in significant loss participations by excess and surplus lines carriers,
including Lloyd’s of London.
Reinsurance: Although Sandy did not impact reinsurers severely, A.M. Best expects the
losses to assist in stabilizing reinsurance rates and enforcement of changes in terms, conditions and attachment points. One ongoing issue that is playing out is how reinsurers,
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Briefing
U.S. Property/Casualty
who have greater flexibility in policy terms, will handle the nullification of the Hurricane
deductibles for Sandy. Clearly, they will be able to more quickly align price with the policy
terms to ensure an adequate alignment of losses and premiums. Future pricing changes
related to this issue will reflect their concerns over other possibly unfavorable regulatory
interpretations of policy language.
Conclusion: After Hurricane Irene and the Halloween 2011 snowstorm, Sandy likely
will lead insurers and reinsurers to carefully scrutinize their future underwriting of
Northeast risks. These recent storms demonstrate that the region exhibits greater
weather-related volatility than previously had been understood. As always, A.M. Best
analysts will discuss these issues and overall risk management initiatives at company
management meetings throughout 2013.
A.M. BEST COMPANY WORLD HEADQUARTERS
Washington Office
Miami Office
A.M. Best Asia-Pacific Ltd.
A.M. Best Europe Rating Services Ltd.
A.M. Best Europe Information Services Ltd.
A.M. Best – MENA, South & Central Asia
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Oldwick, NJ
Washington, DC
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London, UK
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+1 (908) 439-2200
+1 (202) 347-3090
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+44 (0)20 7626-6264
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Important Notice: A Best’s Financial Strength Rating is an independent opinion of an insurer’s financial strength and ability to meet its ongoing insurance policy and
contract obligations. It is based on a comprehensive quantitative and qualitative evaluation of a company’s balance sheet strength, operating performance and business profile. These ratings are not a warranty of an insurer’s current or future ability to meet contractual obligations. The Financial Strength Rating opinion addresses
the relative ability of an insurer to meet its ongoing insurance policy and contract obligations. The rating is not assigned to specific insurance policies or contracts
and does not address any other risk, including, but not limited to, an insurer’s claims-payment policies or procedures; the ability of the insurer to dispute or deny
claims payment on grounds of misrepresentation or fraud; or any specific liability contractually borne by the policy or contract holder. A Financial Strength Rating
is not a recommendation to purchase, hold or terminate any insurance policy, contract or any other financial obligation issued by an insurer, nor does it address the
suitability of any particular policy or contract for a specific purpose or purchaser. In arriving at a rating decision, A.M. Best relies on third-party audited financial data
and/or other information provided to it. While this information is believed to be reliable, A.M. Best does not independently verify the accuracy or reliability of the information. For additional information, see A.M. Best’s Terms of Use at www.ambest.com/terms.html.
SR-2013-B-427