One Year Later: Update on Claim Payouts to Alabama PolicyholdersInsurance and Economic Recovery in the Wake of the April 2011 Tornadoes

Insurance Information InstituteApril 19, 2012

Download at www.iii.org/presentations

Robert P. Hartwig, Ph.D., CPCU, President & EconomistInsurance Information Institute 110 William Street New York, NY 10038

Tel: 212.346.5520 Cell: 917.453.1885 bobh@iii.org www.iii.org

2

Summary of Key Points

Insurers Paid Nearly $3 Billion to 133,000 Alabama Home, Business and Vehicle Owners in Claims Arising from Tornadoes, Hail and High Winds During the Week of April 22-28, 2011

Total claim payouts were nearly 50% higher than early estimates suggested

The April 22-28 storm accounted for 93% of all AL catastrophe losses in 2011

AL claims paid for the April 22-28 storms accounted for 40% of the US total ($7.3 bn)

2011 Was the Worst Year in AL History for Catastrophe Losses

Insured catastrophe losses totaled $3.2 bn arising from nearly 175,000 claims

Homeowners losses accounted for $1.826 bn (66%) of the total from 114,200 claims

Homeowners losses paid exceeded estimated premiums collected of by more than $400 million in 2011

The average cost of a homeowners catastrophe claim reached a record $15,989 in 2011

Between 1998 and 2011, Insured Catastrophe Losses Across the State of Alabama Totaled $8.4 Billion Arising from Nearly 1.1 Million Claims

Home/Condos/Renters’ policies accounted for 67% ($5.6 bn) of dollars paid and 73% of the total number of claims; Commercial property accounts for the remainder.

Actual Claim Dollars Paid to Alabama Are Well Above Early Estimates

Sources: Actual catastrophe loss data is for Catastrophe Serial No. 46 (April 22 – 28, 2011) from PCS as of April 13, 2012; May/June 2011 estimates derived from various catastrophe loss model estimates; Insurance Information Institute .

$2.000

$2.925

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

May/June 2011 Estimates Actual Claim Payouts

($ Billions)

The April 22-28 Storms in AL Accounted for About 93% of 2011’s Record Total $3.2 Billion in Claims Paid to Policyholders in the State

3

Catastrophe losses paid to AL homeowners, businesses and

vehicle owners totaled nearly $3 billion—about 50% above early

estimates.

Commercial, $1,125 , 38%

Vehicle, $150 , 5%

Home, $1,650 , 57%

Homeowners (including renters and

condo policies) accounted for 57% of the claim dollars paid by insurers but 63% of the actual number

of claims

Distribution of Claim Dollars Paid to AL Policyholders for Apr. 22-28 Storms ($ Mill)

Sources: Catastrophe loss data is for Catastrophe Serial No. 46 (April 22 – 28, 2011) from PCS as of April 13, 2012; Insurance Information Institute .

TOTAL = $2.925 BILLION

Commercial, 18,000 , 14%

Vehicle, 30,000 , 23%

Home, 85,000 , 63%

Distribution of Number of Claims Paid to AL Policyholders for Apr. 22-28 Storms

Sources: Catastrophe loss data is for Catastrophe Serial No. 46 (April 22 – 28, 2011) from PCS as of April 13, 2012; Insurance Information Institute .

Homeowners (including renters and

condo policies) accounted for 57% of the claim dollars paid by insurers but 63% of the actual number

of claims

TOTAL = 133,000 CLAIMS PAID

Average Claim Payment by Type of Claim

$5,000

$19,412

$62,500

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

Vehicle Home* Commercial

Commercial (Business) Claims Were More than Three Times More Expensive than Homeowners Claims

6

Commercial (i.e., business claims) are far more expensive

because the value of property is often higher as well as the impact of insured business

interruption losses

*Includes rental and condo policies.Sources: Catastrophe loss data is for Catastrophe Serial No. 46 (April 22 – 28, 2011) from PCS as of April 13, 2012; Insurance Information Institute .

Claim Payments to Policyholders, by State for the April 22-28 Storms

$2,925

$2,000

$590$435 $338 $305

$169 $112 $111 $90 $79 $66$80

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

AL TN TX GA AR MO MS KY OH VA LA IL OK

Alabama Claim Payout Accounted for 40% of the $7.3 Billion US Total for the April 22-28 Tornado and Storm Event, Which Affected 13 States

7Sources: Catastrophe loss data is for Catastrophe Serial No. 46 (April 22 – 28, 2011) from PCS as of April 13, 2012; Insurance Information Institute .

At $2.925 billion, AL suffered, by far, the largest losses from

the Apr. 22-28 storms

TOTAL = $7.3 BILLION

8

Alabama’s 2011 Severe Storm Loss Summary

Tornadoes, Hail and Severe Thunderstorms Took their Toll

Severe Weather Reports in Alabama,January 1—December 31, 2011

9Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#

ALABAMA

Total Reports = 1,311

Tornadoes = 177 (Red)

Hail Reports = 217 (Green)

Wind Reports = 917 (Blue)

There were 1,311 severe weather

reports in AL in 2011

10

Insured Catastrophe Analysis for Alabama Insurance Markets:

Focus on Homeowners’ ClaimsAlabama Has a Long History

of Experience of Catastrophic Loss; Loss

Data Are Trending Adversely

2011 Catastrophe Losses in Alabama’s Homeowners Market Dwarf Premiums Paid

Sources: Homeowners DPW for AL is III estimated based on assumed 5% growth over 2010 actual of $1.323 bn.; Catastrophe loss data is from PCS as of Dec. 7, 2011.

$1.389

$1.826

$1.0

$1.1

$1.2

$1.3

$1.4

$1.5

$1.6

$1.7

$1.8

$1.9

2011 Homeowners Insurance DirectPremiums Written*

2011 Insured Homeowners CatastropheLosses

($ Billions)

Insurers ROE in the AL Homeowners Line in 2011 Will be Negative by Several Hundred Percent

11

Catastrophe losses paid to homeowners in AL are

estimated to exceed premiums collected for the line by $437

million or 31.5% in 2011

12

Value of Insured Catastrophe Losses in Alabama, by Segment, 1998–2011*

*Data are current through Dec. 7, 2011.Source: PCS unit of ISO; Insurance Information Institute.

($ Millions)

$1,8

26$1

,331

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

98 99 00 01 02 03 04 05 06 07 08 09 10 11

Commercial LinesHomeowners

2011 set a new record for catastrophe losses at $3.157 billion. 58% ($1.826B) of the

losses paid went to homeowners, 42% to businesses

Alabama is No Stranger to Catastrophe, but 2011 Was Far More Devastating Than Any Year in History

$3,157

$76

$512

$206$200$197

$1,478

$1,775

$185$125$100$91$33$225

From 1998-2011 insurers paid $8.4 billion to nearly 1.1 million AL victims of catastrophes for damage

to their homes and businesses

13

Number of Insured Catastrophe Claims in Alabama, by Segment, 1998–2011*

*Data are current through Dec. 7, 2011.Source: PCS unit of ISO; Insurance Information Institute.

Number of Claims

114,

200

60,2

50

0

50,000

100,000

150,000

200,000

250,000

98 99 00 01 02 03 04 05 06 07 08 09 10 11

Commercial LinesPersonal Lines

2011 was the costliest year on record and ranked 3rd in terms of number of claims paid at 174,450. Nearly two-

thirds (114,200) of the claims paid were to homeowners, 1/3 to businesses

Insurers in Alabama Paid More than 55,000 Catastrophe Claims on Average Annually Between 1998 and 2011, Most to Homeowners

174,450

$76

122,700

21,50016,000

53,750

179,400

226,000

52,900

26,30032,000

12,40018,805

115,470

14

Value of Alabama Insured Catastrophe Losses: Homeowners, 1998–2011*

($ Millions)

$37

$380

$151$140$134

$944

$1,500

$90$93$53$52$24$163

$1,826

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

98 99 00 01 02 03 04 05 06 07 08 09 10 11

2011 homeowners claims set a new record at $1.826 billion in 2011

Insurers Paid an Average of $400 million per Year to More than 55,000 Homeowners in Alabama from 1998-2011

From 1998-2011 insurers paid $5.6 billion to nearly

775,000 AL victims of catastrophes for damage

to their homes

*Data are current through Dec. 7, 2011.Source: PCS unit of ISO; Insurance Information Institute.

15

Number of Homeowners Catastrophe Losses Paid by Insurers in AL, 1998-2011*

96

,50

0

14

,35

5

8,5

00

23

,00

0

19

,00

0

30

,00

0

20

0,0

00

12

7,3

00

31

,50

0

9,0

00

14

,20

0

83

,00

0

4,0

00

11

4,2

00

0

50,000

100,000

150,000

200,000

250,000

98 99 00 01 02 03 04 05 06 07 08 09 10 11*

*Data are current through Dec. 7, 2011.Source: PCS unit of ISO; Insurance Information Institute calculations.

2011 saw the 3rd largest number of homeowners claims since 1998 even though 2011 was the costliest year ever ($1.826 Bill). 2011 claims were more than double the 55,000 annual

average since 1998.

(Number of Claims Paid)

Insurers in Alabama Paid Nearly 775,000 Catastrophe Claims Between 1998 and 2011 to Homeowners Across the State

16**Through Dec, 7, 2011. Source: PCS Division of ISO.

2011 Catastrophic Homeowners* Claim Activity in Alabama, by Event**

Date Perils Avg. Pmt $ Total $ Pd. # Claims HO $ % HO # %

*Includes all categories of dwelling policies, such as home, condo and renters’ policies

2011 YTD Totals

Event Total

2011:Q1 Total

Event Total

Event Total

Event Total

2011:Q2 Total

2011:Q3 Total

Event Total

2011 has been the most expensive in history for insured catastrophe losses

paid to Alabama homeowners.

Payments totaled $1.826 billion arising from 114,200 claims

17

Average Value of Insured Homeowners Catastrophe Loss Claims in AL, 1998-2011*

$1

,68

7

$1

,68

6

$6

,11

8

$2

,30

4 $4

,89

5

$3

,00

0

$7

,50

0

$7

,41

6

$4

,25

4

$1

5,5

56

$1

0,6

48

$4

,57

8

$9

,25

0

$15,989

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

98 99 00 01 02 03 04 05 06 07 08 09 10 11*

Insured Catastrophe Losses to Homes in Alabama Are Volatile and Are Trending Upward

*Data are current through Dec. 7, 2011.Source: PCS unit of ISO; Insurance Information Institute calculations.

The average homeowners catastrophe claim

reached a new record of $15,989 in 2011, more

than double the average of $6,069 (+163%) from

1998-2010

(Cost of Average Personal Lines Claim

18

Cumulative Value of Catastrophe LossesPaid by Insurers in Alabama, 1998-2011*

$2

25

$2

58

$3

49

$4

49

$5

74

$7

59

$2

,53

4 $4

,01

2

$4

,20

9

$4

,40

9

$4

,61

4

$5

,12

6

$5

,20

2

$8,359

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

98 99 00 01 02 03 04 05 06 07 08 09 10 11*

Catastrophe Losses in Alabama Are High Relative to the Size of the State’s Economy and Population

*Data are current through Dec. 7, 2011.Source: PCS unit of ISO; Insurance Information Institute calculations.

Insurers have paid nearly $8.4 billion on almost 1.1 million

catastrophe claims in Alabama since 1998. The trend in

catastrophe losses began to accelerate in 2004.

($ Millions)

19

Cumulative Number of Catastrophe LossesPaid by Insurers in Alabama, 1998-2011*

11

5,4

70

13

4,2

75

14

6,6

75

17

8,6

75

20

4,9

75

25

7,8

75 4

83

,87

5 66

3,2

75

71

7,0

25

73

3,0

25

75

4,5

25

87

7,2

25

88

3,2

75

1,0

57

,72

5

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

98 99 00 01 02 03 04 05 06 07 08 09 10 11*

The Number of Catastrophe Losses in Alabama Is High Relative to the Size of the State’s Economy and Population

*Data are current through Dec. 7, 2011.Source: PCS unit of ISO; Insurance Information Institute calculations.

Insurers have paid nearly 1.1 million catastrophe claims in Alabama

valued at nearly $8.4 billion since 1998. The trend in catastrophe

losses began to accelerate in 2004.

(Number of Claims Paid)

20

Distribution of Catastrophe Insured Claims in AL, by Segment, 1998–2011*

Value of Claims Paid

Commercial26.8%

(283,170 Claims)

Homeowners73.2%

(774,555 Claims)

Number of Claims Paid

Commercial33.2%

($2.77 Bill)Homeowners66.8%

($5.59 Bill)

*Data are current through Dec. 7, 2011.Source: PCS unit of ISO; Insurance Information Institute calculations.

2/3 of the catastrophe claim dollars paid since

1998 were for damage to homes

Nearly 3/4 of the catastrophe claims paid

since 1998 were for damage to homes

21

Federal Disaster Declarations: Trending Adversely

Alabama Has the 7th Highest Number of Federal Disaster

Declarations From 1953 - 2011

Number of Federal Disaster Declarations, 1953-2012*

13 1

7 18

16

16

7 71

21

22

22

0 25

25

11

11

19

29

17

17

48

46

46

38

30

22 2

54

22

31

52

42

13

42

7 28

23

11

31

38

45

32 3

63

27

54

46

55

04

54

5 49

56

69

48 5

26

37

55

98

19

91

2

43

0

20

40

60

80

100

120

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

*Through April 18, 2012.Source: Federal Emergency Management Administration: http://www.fema.gov/news/disaster_totals_annual.fema ; Insurance Information Institute.

The Number of Federal Disaster Declarations Is Rising and Set New Records in 2010 and 2011

The number of federal disaster declarations set a

new record in 2011, with 99, shattering 2010’s record 81

declarations.

There have been 2,057 federal disaster

declarations since 1953. The average

number of declarations per year is 34 from

1953-2010, though that few haven’t been

recorded since 1995.

12 federal disasters were declared

through Apr. 18, 2012

22

23

Federal Disasters Declarations by State, 1953 – 2012: Highest 25 States*

86

78

70

65

63

58

56

56

53

53

51

51

50

48

48

48

47

47

47

45

45

45

42

40

39

0

10

20

30

40

50

60

70

80

90

100

TX CA OK NY FL LA AL KY AR MO IL TN MS IA MN WV KS NE PA OH VA WA ND NC IN

Dis

as

ter

De

cla

rati

on

s

*Through Apr. 18, 2012.

Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.

Over the past nearly 60 years,

Texas has had the highest number of Federal Disaster

Declarations

AL has had 56 federal disaster

declarations since 1953, nearly one per year, and has had 1

so far in 2012

24

Federal Disasters Declarations by State, 1953 – 2012: Lowest 25 States*

39

39

37

36

35

33

33

28

28

27

26

26

25

24

24

23

22

20

17

17

16

15

14

11

10

9 9

0

10

20

30

40

50

ME SD AK GA WI VT NJ NH OR MA PR HI MI AZ NM ID MD MT NV CT CO SC DE DC UT RI WY

Dis

as

ter

De

cla

rati

on

s

*Through Apr. 18, 2012. Includes Puerto Rico and the District of Columbia.

Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.

Over the past nearly 60 years, Utah and Rhode Island had the fewest

number of Federal Disaster Declarations

Number of Federal Disaster Declarations In Alabama, 1953-2012*

0 0 0 0 0 0 0 01

0 0 0 0 0 0 01 1

0 02

13

01 1

21

20

10

10 0 0

12

0 03

2 21

31

32 2

1 12

01 1

51 1 11

0.0

1.0

2.0

3.0

4.0

5.0

6.0

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

*Through April 18, 2012.Source: Federal Emergency Management Administration: http://www.fema.gov/news/disaster_totals_annual.fema ; Insurance Information Institute.

The Number of Federal Disaster Declarations Spike in 2009 Was the Highest Ever, Mostly Associated with Tornadoes, Severe Storms, Straight Line

Winds, Floods and Tropical Storm Ida

The one federal disaster declaration in 2011 was

associated with the severe tornado and severe storm

outbreak in April

There have been 56 federal disaster

declarations in AL since 1953. The average

number of declarations per year is 0.9 from 1953-2011, though the number

has been higher in recent years

26

SPRING 2012 TORNADO & SEVERE STORM OUTBREAKS

2012 Is Off to a Worrisome Start, But a Repeat of 2011 Is Unlikely

26

27

1,1

33

1,1

32 1

,29

7

1,1

73

1,0

82 1,2

34

1,1

73

1,1

48

1,4

24

1,3

45

1,0

71 1,2

16

94

1

1,3

76

1,2

64

1,1

03

1,0

98

1,6

92

1,1

46 1,2

82

54

4

1,819

1,6

91

550

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12*

Nu

mb

er

of

To

rna

do

es

0

100

200

300

400

500

600

Nu

mb

er o

f De

ath

s

Number of Tornadoes

Number of Deaths

*Through April 15, 2012.Source: U.S. Department of Commerce, Storm Prediction Center, National Weather Service at http://www.spc.noaa.gov/climo/online/monthly/newm.html

Number of Tornadoes and Related Deaths, 1990 – 2012*

Tornadoes claimed 550 lives in 2011, the most since 1925

There were 1,691 tornadoes recorded

in the US in 2011

2012 Tornado Losses Is Off to a Ominous Beginning. First Half 2011 Insured Losses from Tornadoes and Thunderstorms Topped $21B.

U.S. Tornado Count, 2005-2012*

28

*Through April 17, 2012.Source: http://www.spc.noaa.gov/wcm/

There were 1,897 tornadoes in the US in 2011 far above

average, but well below 2008’s record

2012 count is running

ahead of 2011

29

SUMMARY OF TORNADO AND SEVERE STORM ACTIVITY IN ALABAMA IN 2012

Tornado Season Got Off to an Early Start in Alabama This Year

Location of Severe Storms in Alabama, January 1—April 16, 2012

30Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2012_annual_summary.html#

ALABAMA

Total Reports = 295

Tornadoes = 52 (Red)

Hail Reports = 129 (Green)

Wind Reports = 114 (Blue)

There were 295 severe weather

reports in AL so far in 2012

Location of Tornadoes in the US, 2012*

*Through April 16, 2012.Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2012_annual_summary.html# 31

546 tornadoes killed 61 people through

April 16

32

RECAP: 2011 TORNADO & SEVERE STORM OUTBREAKS

2011 Weather Created Near-Record Claim Payouts

Location of Tornadoes in the US, 2011

Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 33

1,894 tornadoes killed 552 people in 2011, including

at least 340 on April 26 mostly in the Tuscaloosa area, and 130 in

Joplin on May 22

Location of Large Hail Reports in the US, 2011

Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 34

There were 9,417 “Large Hail”

reports in 2011, causing extensive damage to homes,

businesses and vehicles

Location of Wind Damage Reports in the US, 2011

Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 35

There were 18,685 “Wind Damage” reports through Dec. 27, causing

extensive damage to homes and,

businesses

Severe Weather Reports, 2011

36Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#

There were 29,996 severe

weather reports in 2011;

including 1,894 tornadoes;

9,417 “Large Hail” reports

and 18,685 high wind events

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