A quiet hurricane season is helping property-casualty insurers have the most profitable year since 2007, when the recession began, but it doesn’t mean the industry skated through the year without paying billions of dollars in claims for other types of disasters.
“Barring some mega-catastrophe in the final four weeks of the year, it’s virtually certain that the industry will have its best year in terms of profitability and performance in the post-crisis era,” said Robert Hartwig, an economist and president of the Insurance Information Institute, a property-casualty research organization funded by insurers.
Several other factors have helped profits in the property-casualty industry this year. For one, Hartwig said, the cost for claims in the auto, medical malpractice, and workers’ compensation segments, among others, have moderated.
“So, costs are not accelerating the way that they did,” he said.
Property-casualty insurers like The Travelers Cos., The Hartford Financial Services Group and others also have raised prices for several years, including this year.
Individual companies are legally prohibited from commenting on whether they will have a more profitable year this year than any of the years in the past because it speculates on performance that hasn’t been reported yet. And you can’t extrapolate full-year profitability by comparing the first three quarters of 2013 to the first three quarters of previous years because that would exclude fourth-quarter expenses, which last year included Storm Sandy.
But Hartwig said it’s safe to say the 2013 hurricane season is good for the bottom line.
“There’s no question that the dramatic reduction in catastrophe losses this year is the major contributor [to profits],” Hartwig said. “But insurers are not going to operate in 2014 as if 2013 is the new norm for catastrophe losses. If anything, it’s likely to be viewed as a temporary respite.”
The 2013 Atlantic hurricane season from June 1 through Nov. 30 had the fewest hurricanes since 1982. It was the sixth-least-active Atlantic hurricane season since 1950 “in terms of the collective strength and duration of named storms and hurricanes,” according to the National Oceanic and Atmospheric Administration.
The season brought 13 named storms, including two hurricanes: Humberto and Ingrid. A typical year has fewer named storms — 12 — but more hurricanes and major hurricanes, six and three, respectively. This year was the third below-normal season since 1995 when the Atlantic basin began a period of greater storm activity.
A named storm has sustained winds of at least 39 mph, and a hurricane has sustained winds of at least 74 mph. A major hurricane is Category 3 or greater, meaning it has sustained winds of at least 111 mph.
Tim Doggett, a senior principal scientist at the catastrophe-modeling company AIR Worldwide in Boston, said in an email: “The season’s first hurricane, Humberto, tied 2002’s Hurricane Gustav for the latest date of formation (September 11th). On average the first hurricane forms by August 10th.”
Jeff Waters, senior manager and meteorologist at the catastrophe-modeling company RMS, said in an e-mail: “Hurricane forecasters measure the overall damage potential of individual tropical cyclones and tropical cyclone seasons using a metric called Accumulated Cyclone Energy, or ACE. This hurricane season’s ACE total is just over 30, which is only 30% of the long-term ACE average. Since 1950, only four other Atlantic hurricane seasons have yielded lower ACE totals: 1983, 1982, 1977, and 1972.”
Gerry Bell, lead seasonal hurricane forecaster at NOAA’s Climate Prediction Center, a division of the National Weather Service, said in a statement: “This unexpectedly low activity is linked to an unpredictable atmospheric pattern that prevented the growth of storms by producing exceptionally dry, sinking air and strong vertical wind shear in much of the main hurricane formation region, which spans the tropical Atlantic Ocean and Caribbean Sea.”
“Also detrimental to some tropical cyclones this year were several strong outbreaks of dry and stable air that originated over Africa,” Bell said.
NOAA’s forecast in May called for 13 to 20 named storms, of which seven to 11 would be hurricanes and three to six would be major hurricanes.
Expenses from hurricane damage are a large part of “catastrophe losses,” which is the money insurers pay on claims for tornadoes, winter storms, hurricanes, wildfires and all other natural disasters. Hurricanes accounted for 40.4 percent of $391.7 billion the insurance industry paid in between 1993 and last year in claims for all sorts of disasters, including fires, wind, hail, terrorist events, winter storms and tornadoes, according to the Insurance Information Institute. The amount paid is adjusted to represent the cost in 2012 dollars.
Tornadoes were a close second at 36 percent of total catastrophe costs.
Because of tornadoes, wild fires and other disasters, even a calm hurricane season didn’t make this the least expensive year for property casualty insurers.
Catastrophe losses for the industry as a whole totaled $10.9 billion through the end of August, the most recent information available through the insurance institute. That’s already more than total yearly losses in 2007, 2006, 2002, 2000, 1997, 1993, 1991 and 1990, adjusted for inflation and represented in 2012 dollars.
Hurricanes tend to get more media attention than the cumulative effect of other natural disasters throughout the year, Hartwig said. This year, insurers have paid for wildfires in Colorado, Idaho and elsewhere in the western U.S. The tornado that hit Moore, Okla., cost about $1.7 billion.
“It’s important to recognize these events,” he said. “They add up.”