Canadian Underwriter

Third Texas hail storm in less than a month could push state’s year-to-date damage beyond nine-year average for U.S.: A.M. Best

April 25, 2016   by Canadian Underwriter

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Texas’s third major hail storm in less than a month on Apr. 11 could push the state’s damage so far this year to beyond the nine-year average of US$1.2 billion for the whole of the United States, notes a report issued Friday by A.M. Best.

The Best’s Briefing states that insured losses from the first two hail storms in Texas continue to climb and are currently estimated at US$1.3 billion. “While it is too early to accurately estimate losses, this third storm is expected to be worse than the first two,” notes the A.M. Best report.

“The Dallas/Fort Worth area was hit by three massive hail storms within a month,” Mark Hanna, a spokesperson for the Insurance Council of Texas (ICT), said in a statement last week. “These devastating storms were followed by what may become the costliest hail storm on record striking San Antonio on April 12. And when you think it’s over for a while, Houston gets swamped with a 20-inch rainfall. You have to wonder what is in store for Texas for the rest of this year.”

The unusual amount of moist air and instability over the state has kept “the hail suspended in the clouds over an extended period of time, resulting in baseball-sized hail that created significant damage,” explains the A.M. Best report. Ripe for producing hail, the volatile conditions are expected to remain in place until at least June, it adds.

The latest hail storm Apr. 11 struck the Dallas-Fort Worth area, destroying vehicles and leaving homes uninhabitable, A.M. Best notes.

Companies with a heavy concentration of automobile physical damage will have significant losses, the company suggests. As well, some companies with significant concentration and limited scale will face pressure from these losses.

“For property insurance writers, in particular in property lines of business, losses are expected to stem from broken windows and roof damage,” states the report. “However, the increased use of actual cash value (ACV) for roof repairs, increased deductibles, and improved risk management strategies implemented over the last several years will help limit the amount of the ultimate claim payment,” it adds.

Data compiled from numerous sources indicates total hail damage in the U.S. last year was below the nine-year average of US$1.2 billion; year-to-date 2016 results in Texas alone appear to have already met that U.S. average. [Click on image below to enlarge]

That said, “pricing sophistication for property business has evolved, with increased adoption of by-peril pricing algorithms and greater granularity of risk characteristics,” A.M. Best points out. “Accordingly, many companies appear well-prepared to handle these types of events; however, early indications show that these events will have an impact on underwriting performance and overall earnings,” the report notes.

Overall, the company reports that it expects “there will be limited rating actions associated with these events for both property and auto physical damage writers as A.M. Best’s view of risk-adjusted capitalization already incorporates estimated losses from severe events such as these and most companies have been able to increase their capitalization in recent years.”

Along with the hail damage, Texas has witnessed severe flooding in some areas. Risk Management Solutions Inc. reported late last week that weather events in Texas may be producing “one of the most severe flood events” in history in Houston, not caused by a tropical cyclone. “Much of Harris County, which includes the greater Houston area, received at least six inches of rain on Monday Apr. 18, with some parts receiving more than a foot,” Jeff Waters, a meteorologist and manager of model product management at RMS, said at the time.

Related: Record rainfall in Texas prompts extensive flash flooding

Citing U.S. National Oceanic and Atmospheric Administration data, RMS added that flooding in the Houston area “has become increasingly common over the last 15-20 years due to significant property and population growth in the region.”

ICT reported last week that 2016 has continued last year’s trend of severe weather across the state, with more than US$1 billion in insured losses reported from March hail storms. “Insurance companies are reporting they have already handled more wind/hail claims this year than all of last year,” the council adds.

Related: Houston, Texas airport has second wettest day on record: RMS