RMS: Insurers Can Expect Severe Storm Seasons Every Four or

Analysis by catastrophe risk management firm Risk Management Solutions concludes that although insurance companies may have been taken by surprise by an above-normal tornado, hail and storm season in 2008, insurers can expect the same level of loss every four or five years.

"This means there's potential for far more extreme loss seasons, and insurers should quantify and manage their exposures to this peril as they would hurricanes and earthquakes to help avoid future unpleasant surprises," said Matthew Nielsen, product manager at RMS, in a special report.

According to analysis by the group, last year's storm season in the Midwest and Great Plains caused more than $10.5 billion in insured loss -- an amount comparable to projections of losses caused by Hurricane Ike. The season included nearly 1,700 tornadoes and was the costliest in a decade.

"The 2008 severe convective storm season caught the insurance industry by surprise predominantly because a year like 2008 has not occurred for a number of years, and thus did not feature in many companies' claims histories, especially as exposure has grown so rapidly," the reports says. "Many aggregate insurance covers were exhausted in 2008 and earnings receded throughout the year."

The most expensive event to insurers was a late May event in the Great Plains that included strong tornadoes in Windsor, Colo. and Parkersburg, Iowa. Insured losses from this system of storms was about $1.3 billion, RMS said. The season also began early, with what has come to be known as "Super Tuesday" on Feb. 5 in the Southeast. In a two-day span 87 tornadoes were confirmed and $955 million in losses were recorded in a area from Texas to Ohio to Alabama.

About half the total losses from the storm season, $4.9 billion, were caused by five events from February to June. Most annual tornado activity occurs from March through September.

Producing more insured losses than tornadoes was hail, RMS said. Hail accounted for more than 60% of losses, compared with 25% for tornadoes and 15% for straight-line winds.

A special report by A.M. Best Co. found tornadoes and related weather events have caused nearly 57%, on average, of all insured catastrophe losses in the United States in any year since 1953 (BestWire, April 13, 2009).

(By Chad Hemenway, associate editor, BestWeek: Chad.Hemenway@ambest.com)