Tornado Losses Could Reach $5B But Should Be Manageable for Insurers: Experts

December 15, 2021

The late-season tornado outbreak that caused destruction across six states last weekend is expected to generate significant economic and insured losses, but it’s unlikely to be a capital event for property/casualty insurers and reinsurers, industry experts predict.

Fitch Ratings estimates insured losses from the tornadoes that hit Kentucky, Arkansas, Illinois, Mississippi, Missouri and Tennessee on Dec. 10-11 could rise as high as $5 billion, rivaling the U.S. Midwest derecho event in August last year and likely driving natural catastrophe insured losses to the largest annual total in the U.S. since the 2017 record year (approximately $130 billion). However, the loss would still be well below both Hurricane Ida in August ($40 billion) and Winter Storm Uri in February ($15 billion).

Fitch expects the losses will most likely be concentrated within large homeowner insurance underwriters that have effective claims resources and are well capitalized to absorb short-term volatility from outsized catastrophic events.

Catastrophe modeling firm Karen Clark & Co estimates the insured loss from the tornado outbreak will be about $3 billion. This estimate includes privately insured damage to residential, commercial and industrial property and automobiles.

The KCC report notes: “The tornado outbreak caused significant damage across the impacted states. There have been thousands of reports of damage and hundreds of reports of destroyed homes and businesses including factories and warehouses. Widespread effects across the impacted states range from torn off roofs and downed trees to demolished buildings.”

AM Best analysts expect the losses from the tornadoes will dampen underwriting results for insurers but that companies will be able to absorb them, even though supply chain and inflation challenges may exacerbate losses. Best said insured losses are likely to be concentrated in the commercial multiperil and homeowners lines, with some losses borne by auto physical damage as well.