Severe Weather Conditions Don’t Batter Reinsurers as 2014 Q1 Trends Emerge

Reinsurers must be smiling a lot as Q1 reports for this year show up. Most insurers seem set to gain from uncompromised capital and manageable claim volumes. Underwriting teams have performed rather well with 2014 being a remarkably silent year in terms of catastrophes. With no major natural disasters so far and no discouraging weather forecasts, the immediate future looks secure for carriers.

Staying Positive with a Guarded Approach

After 2012, ever since the likes of Sandy battered the coastal regions, river/ocean dwellings and businesses have been spared from permanent damage. However, it would be wrong to state that the entire industry hasn’t seen any challenges in the first quarter of 2014.

As market optimism gained momentum after the Holidays, winter storms started rolling in. With the onset of 2014, a polar vortex gripped the nation, bringing freezing temperatures to most states. This was interpreted as a part of a global weather pattern since European nations too suffered from winter storms and flooding (very severe in the UK). However, the reinsurance industry isn't complaining much about these events.

Most businesses that seek comprehensive coverage against various types of natural disasters usually pay more-than-average premiums. Further, the smaller insurers have typically stayed away from taking upon too much of reinsurance risks. The bigger, more established insurers exposed to claims surfacing due to snowstorms have been able to absorb the shock.

Yes, insurers have received storm related claims but the overall situations remains manageable for most insurers. Most claims haven’t sought compensation for total overhauls or large scale construction. Most properties suffered partial damages. Common damages include collapsed roofs, burst sewage lines, power failures, and auto accidents but with little loss of life or excessive damage to property. Many needed exhaustive repairs but little rebuilding. This ensured that carriers’ bottom line wasn’t dented. Further, reinsurers are exposed for a part of the total compensation only.

Making Sense of All This

The significance of this upbeat trend assumes greater importance if the severity of cold and snowfall-caused losses are taken into consideration. The losses are at their highest since 1980. The entire nation has been suffering an unexpectedly long and brutal winter. This has given rise to more commercial and personal claims. Still, the industry at large remains positive, finding security in its capital reserves. The insurers’ buffer has been further boosted by better consumer activity in the first quarter.

Agents are being increasingly questioned by consumers who have had a recent, good run on their credit histories. Reinsured mortgages are being sanctioned with lesser apprehensions. This is creating a cycle of positivity—a better capital position is allowing insurers to take upon more risk which is further influencing better consumer interest. Even the catastrophe bonds that provide some level of reinsurance protection against losses caused by winter storms are expected to deliver, not causing any principal loss.

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Severe Winter to Squeeze the Earnings of Property Insurers

Harsh weather conditions cause property damages and financial losses. For Americans, this year's winter was one of the worst in recent memory. In fact, winter storms brought many parts of the country to a standstill. Administrators had a tough time keeping the roads clear for vehicles and pedestrians during the winter season. In fact, officials across the country are still paying the bills.

In Atlanta, the cleanup costs amounted to $13.5 million. The situation was even worse in many other parts of the country.

Severe winter also hurt property insurer's earnings during the first quarter. In fact, this year's winter was probably one of the costliest in the country since 1980. Insured losses during the period were more than 1.5 billion USD.

Besides causing major property losses, the adverse winter affected several businesses. Many companies had to deal with supply chain issues and business disruptions. If you add sinkholes, train derailments and mudslides, it is not hard to see that the first quarter loss is above average.

Winter isn't the only cause of property damage in the US. The Atlantic hurricane season is even more dangerous. Although weather forecasters expect this year's hurricane season to be less active, you never know until the storms hit the shore.

Several independent studies note that property insurer's net income during this quarter is likely to be challenged. However, since the market for securities is strong, they should be able to sail through.

This year's severe weather upset business operations for several companies throughout the country. Severe weather conditions pose a continuous threat to the bottom lines of many businesses in the US.

FM Global, unarguably one of the biggest business property insurers in the world, recently conducted a poll of the workforce in the US. Over 70% of the full-time workers in the US said that this year's winter was the worst they had experienced in five years. More than 25% employees said that their company had been hit by the weather. Unfortunately, most of them didn't have any emergency plans to continue their operation during the hostile weather conditions.

However, winter-related financial losses have caused many companies to rethink their strategies and change the way they do business. That is a welcome move because the weather is quite unpredictable and hence companies should avoid complacency.

Harsh winter can cause property damage and financial loss. It may also affect the organization's competitiveness. Businesses need to be resilient and should be able to deal with all weather-related emergencies.

Businesses can prevent property damage in winter by following these guidelines.

·         Don't expect the winter to be lenient. You should plan as though freeze-ups are going to be certain. This is imperative even if your company headquarters is located in a warmer climate where severe drops in temperatures are unlikely.

·         Every company should have some employees to patrol buildings during the winter season. They should look for cold spots, large leaks and structural damages.

·         If the operations need to be shut down, there should still be procedures for adequate heating. This is imperative. If the company fails to heat the premises adequately, they will not be able to claim damages from their insurance companies.

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