Best's Briefing: P/C Insurers Well Positioned to Absorb Losses as Hurricane Sandy Threatens
After a relatively quiet 2012, insurers spent the weekend preparing for the first large-scale catastrophe event of the year. After passing through the Caribbean, Hurricane Sandy, the 18th named storm of the season, continued on a path toward the densely populated East Coast. Sandy, described as an unprecedented storm, has baffled forecasters and modelers as there are not many modern precedents for what the models are suggesting. Hurricane-force winds 175 miles from the center of the asymmetrical storm and tropical storm-force winds spanning 850 miles in diameter could impact 50 million to 60 million people. According to the National Oceanic and Atmospheric Administration (NOAA), Sandy could be the largest storm ever to hit the United States.
For most primary insurers, the biggest impacts from Sandy are likely to be wind and downed tree damage to roofs and cars, as well as business interruption losses from prolonged power outages, A.M. Best Co. states in a briefing. It is likely that the brunt of the storm's financial impact will fall on the National Flood Insurance Program (NFIP), which is responsible for almost all flood coverage in the country. The NFIP paid out $1.28 billion in losses last year from Hurricane Irene, making it the fourth-costliest flood event of the last generation. Compared with Irene, Sandy is expected to produce a much broader surge impact, as landfall is expected to coincide with the lunar tide.
As a whole, the industry is well capitalized to absorb the financial impact of this type of event. However, individual companies may be negatively impacted, depending on where they write and their degree of risk concentration relative to the ultimate path of the storm. It is important to note that over the past several years, catastrophe risk management efforts have been under way to address this type of potential loss scenario. In particular, companies have implemented exposure management initiatives, percentage deductibles and pricing changes. The ultimate effectiveness of these programs may be tested by Hurricane Sandy.
A.M. Best will continue to monitor the financial impact of this event on rated entities and will provide updates on ratings as required.
For a complimentary copy of the full briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_Code=206123
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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A.M. Best Co.
Anthony Diodato, 908-439-2200, ext. 5704
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Group Vice President
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Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations