Canadian Underwriter

Insurance industry well-positioned to absorb estimated insured losses from Alberta flooding: A.M. Best

July 2, 2013   by Canadian Underwriter

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The relative scarcity of property coverage for flooding in Canada is likely to keep claims in the range of $1 billion to $3.75 billion, well below early estimates of total economic loss of as much as $5 billion, A.M. Best reports.

“A.M. Best believes that the industry currently is well-positioned from a risk-adjusted capital perspective to absorb the estimated insured losses, and underlying performance trends remain favourable,” notes Best’s Briefing for July 1.

Still, the event appears likely to rank among Canada’s largest catastrophe losses. Those that match or exceed the expected insurance payout from the Alberta floods include the 1998 ice storm, with insured losses of approximately $1.5 billion in inflation-adjusted dollars; a similar toll for flash flooding in Quebec in July 1996; about $700 million in claims for the Slave Lake wildfire in 2011; and about $500 million for the flooding along the Red River in Manitoba in 1997.

FloodThe recent flooding in Alberta could represent a level of total economic damage that is roughly 20 to 30 times higher than the province’s previous major flood event in 2005, notes the Impact Forecasting weekly cat report, issued by Aon Benfield June 28. That estimate is based on a preliminary report from BMO Capital Markets suggesting total economic damage cost across Alberta is likely to range between $3 billion and $5 billion, the update says.

In Alberta’s 2005 event – which damaged at least 40,000 homes in Calgary and forced about 1,500 residents to evacuate – insured losses were $275 million, Aon Benfield reports.

Insured losses from the latest flooding likely will be driven primarily from commercial lines, A.M. Best notes, pointing out that “commercial insurers may face business interruption claims from enterprises that carry this [optional] coverage.”

Provincial officials in Alberta declared 27 states of emergencies, including in Calgary, where local authorities ordered the mandatory evacuation of 75,000 residents from 26 neighbourhoods along the Elbow and Bow rivers, notes the Aon Benfield cat update. In downtown Calgary, “floodwaters inundated the lower levels of homes and businesses in the immediate area. The city’s central business district was also inundated, forcing many of Canada’s main oil companies to shift operational work elsewhere.”

Among the many other examples of major damage was the Scotiabank Saddledome, the Calgary Stampede grounds and the Calgary Zoo. “Almost all public transportation via Calgary Transit’s CTrain service in the downtown area was shut down, and all schools were closed due to extensive road blockages,” Aon Benfield notes.

The business district “was inaccessible for several days due to water damage, as well as a lack of electricity,” the update says. Extensive infrastructure damage was prevalent across the city as a result of washed-out roads, bridges and rail tracks, with as many as 70 sinkholes noted.

Sections of the Canada Pacific Railway, which run near the bank of the Bow River in downtown Calgary, were damaged and remain closed as of June 28,” notes a statement from catastrophe modelling firm AIR Worldwide. Also as of that date, “power has been restored to much of Calgary, and the Trans-Canada Highway has been repaired west of Calgary. However, many buildings in the affected area still have flooded basements, and clean-up efforts are anticipated to continue for some time,” the statement adds.

Outside of Calgary, Aon Benfield notes the most significant damage appeared to occur in Medicine Hat, where at least 1,000 homes were damaged after the Saskatchewan River burst its banks, and in High River, where officials evacuated 3,000 residents and had to perform 150 rooftop rescues.

“In personal lines, automobile insurers likely face exposure from claims on comprehensive policies,” A.M. Best reports. “For the most part, homeowners policies exclude coverage for overland water. However, there may be some payouts for damage resulting from water backing up into basements, for those who purchased such an endorsement,” the briefing adds.

AIR Worldwide notes the predominant construction method of single-family homes in the region is wood frame. “Homes with basements are particularly at risk for contents damage. Apartment buildings and commercial buildings in the region comprise masonry and reinforced concrete,” the statement adds.

“These floods have been particularly severe because the ground was already saturated, as the spring in southern Alberta has been unusually wet,” Tim Doggett, senior principal scientist at AIR Worldwide, notes in the statement. “In addition, in some locations, soils just 50 cm below the surface had not yet thawed, forcing the rainfall to flow downhill and enter rivers and streams rather than soaking into the ground,” Doggett adds.

The Alberta government has approved $1 billion in emergency recovery and reconstruction funding for communities in the southern part of the province hit hard by flooding.

A.M. Best reports that, although it is too early to determine any ratings impact, it does not expect a significant number of rating actions as a result of the Alberta flooding.

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