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May 2022

US: Tornado outbreak adds to 2021 insurance losses, but seems manageable

Source: Middle East Insurance Review | Jan 2022

AM Best expects insurance companies to be able to absorb the losses from the recent and deadly US tornado outbreak across central and southern states last December. However, supply chain challenges and inflationary pressures may exacerbate insurance losses, the ratings agency said in a recent report titled ‘Tornado Outbreak Adds to 2021 Insurance Losses, but Appears to Be Earnings Event’.
The report said that the severe damage from the tornadoes will dampen underwriting results for US property/casualty insurers, which already have seen severe weather-related losses in 2021, and that this tornado event is an outlier in terms of insurance events for December, which tends to experience low weather-related losses. Last December, more than 30 tornadoes were reported across five states.
AM Best expects insured losses to be concentrated in the commercial multi-peril and homeowners’ lines, with some losses borne by auto physical damage as well. Given the industry’s robust capitalisation and risk management techniques, the outbreak likely will be an earnings event for the industry. “In particular, the Kentucky insurance market is not concentrated, and so losses may be spread out among insurers. AM Best will monitor affected insurance companies as more clarity on losses becomes apparent,” said the report.
Despite being manageable, this event will dampen the underwriting profitability of the insurance industry, which faced a very eventful year with more than $20bn in estimated losses, according to Aon. The outbreak occurred in the midst of significant challenges related to the supply chain and rising costs owing to inflationary pressures.
The growing number of tornadoes and severe weather events will lead insurers to re-examine their reinsurance protection and to reinsurers becoming more cautious as they look at demand and risk, which may be reflected through pricing, limits, deductibles and other underwriting tools. M 
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