Property Insurers Hit By Worst First Quarter in 20 Years

Hail, tornadoes and an ice storm turned the first three months of 2017 into the most expensive first quarter in more than 20 years for U.S. insurers.

The unexpectedly harsh weather is surfacing in insurers' earnings. First-quarter underwriting results for Travelers Cos. worsened year-over-year as catastrophe costs jumped 9% to $347 million. Allstate Corp. and others have warned about increased storm-related claims ahead of their earnings reports, with a slew of property-casualty insurers, including American International Group Inc. reporting this week.

These companies insure millions of cars and homes across the U.S., and some also insure businesses. Insurers are paying out for weather-related vehicle crashes, shattered windows, and damage to roofs of cars and homes from the hail and fallen tree limbs.

Some insurers have said the weather was more typical of second quarters than the first three months of the year.

"We, like the broader industry, are experiencing historic levels of weather-related losses and clearly seeing a troubling weather trend," Marita Zuraitis, Horace Mann Educators Corp.'s chief executive, told analysts in an April 25 earnings call.

She said the company is "keenly focused on ensuring that our rate plan includes adequate increases to account for this volatility."

The insured damage from all natural disasters in the U.S. in the first quarter is currently estimated to total nearly $7 billion, according to reinsurance specialist Aon Benfield. Of that, about $6 billion is from severe storms.

That makes this year's opening three months the most expensive first quarter on record for the insurance industry in paying out severe thunderstorm-related claims, the firm said. This year's first-quarter cost compares with an average of about $1.5 billion in such first-quarter insured losses from 2000-2016, Aon Benfield said.

According to preliminary government data, there were 425 tornadoes from January through March, compared with 205 in the same period in 2016, and an average of 93 in the same period for the three years 2014-2016.

How much impact the bad weather will have on U.S. consumers' insurance bills is unclear, but it is expected to add to the pressure that already has caused a 14% increase since 2014 in the average annual car-insurance premium, to $990, as insurers address higher crash rates tied to distracted driving. The average home-insurance premium is up 16% over the same period, to $1,315, according to estimates by trade group Insurance Information Institute.

Steve Bowen, a meteorologist with Aon Benfield, said favorable atmospheric conditions and an abnormally warm Gulf of Mexico helped fuel storm systems crossing the country. "Early season severe weather outbreaks are not unprecedented," he said. "If the right conditions exist, thunderstorms are going to occur."

He said April was "shaping up as another costly month" for U.S. insurers.

To be sure, the first quarter is a traditionally lower-damage period, partly because it doesn't typically include hurricanes. Hurricane Katrina, which occurred in late August 2005, left about $50 billion in insured damage in today's dollars, making it the costlier-ever U.S. storm, the information institute said.

In addition, the unusually bad U.S. weather occurred as non-U.S. catastrophes were below historical averages, according to Keefe, Bruyette & Woods. Some insurers with large international footprints, like Chubb Ltd., have reported lower year-over-year catastrophe costs.

U.S. property-casualty insurers have surplus -- which basically is assets minus liabilities -- of approximately $700 billion, a record high, according to the industry trade group.

"It's not a balance-sheet event, and I would generally not expect it to impact share buybacks of any of the major insurers," Barclays analyst Jay Gelb said.

Personal-lines insurers are typically at highest risk of losses in the middle part of the June 1 to Nov. 30 hurricane season.

Colorado State University, one of the most closely followed forecasters of hurricane activity, this year predicts a total of 11 named storms. Of those, four are predicted to become hurricanes and two to be Category 3 or higher, with sustained winds of at least 111 miles an hour. This is below the 30-year average of 12 named storms, including six hurricanes and two major hurricanes.

Write to Leslie Scism at

(END) Dow Jones Newswires

April 30, 2017 09:14 ET (13:14 GMT)