Moody’s Weekly Credit Report took an in-depth look at the U.S. insurance market. Catastrophe losses for the first six months of this year remained stable at $7.9 billion as compared with $7.7 billion for the same period last year, but still above the $6 billion average over the past ten years. Moody’s writes that while there has not been a severe natural catastrophe in 2009 and 2010 to date, “the underwriting margins of many industry players, particularly those with property coverage concentrations, have suffered significant aggregate losses because of a sharp upswing in the frequency of low-severity perils including tornados, winter storms, hail and covered floods.” In 2010, we have seen epic floods in Tennessee, severe hailstorms in Oklahoma and diverse tornadoes, including those in low-risk areas such as Southern California and New York City.
“In the past, losses from non-hurricane weather-related events were less volatile, allowing insurers to charge sufficient premium to offset exposure to these perils,” Moody’s wrote. “But this recent uptick in volatility is problematic for insurers given the thin underwriting margins in what is largely a commodity business, particularly in the homeowners segment.” Insurers are also assuming more of these losses on their own balance sheets, Moody’s noted. “Although insurers typically purchase reinsurance protection for hurricanes and earthquakes, these small-scale weather-related losses tend not to trigger reinsurance protections.” As the cumulative effect of these low-severity events is catching up with insurers, it is not surprising that they should respond by filing for rate increases on their homeowners’ coverage. Expect them to follow suit for commercial rates. If you can renew your coverage before rates increase, you would be wise to do so.