Insured losses for the rash of tornadoes that tore through 10 states earlier this month have been estimated at $2 billion to $5 billion, according to modeling firm Eqecat, and the twister that devastated Moore, Okla., is responsible for the lion's share of that total. Even as communities like Moore begin to rebuild after that terrible disaster, the National Oceanic and Atmospheric Administration came out with their yearly outlook on this year's hurricane season: It will be an active one, with between 13 and 20 named storms occurring between June 1 and late November.
An expensive season for insurers?
Despite the fact that the tornado that ripped through Moore may wind up being the costliest to ever touch down in the U.S., property and casualty insurers Allstate (NYSE:ALL), Travelers (NYSE:TRV), and Chubb (NYSE:CB) will likely weather that particular storm pretty well.
That's because those companies have a rather small presence in Oklahoma, which is dominated by mutual companies. According to The Wall Street Journal, Allstate's homeowner policies make up 6.3% of the state's total, with Travelers and Chubb commanding 10% and 6.4% of the commercial side, consecutively.
Of course, the storm season is just starting, and the specter of Superstorm Sandy is still fresh in everyone's minds -- including investors. But those who follow the industry know that Sandy barely dinged the three insurers, all of which have come back strong since then.
Insurers have taken steps to bolster their balance sheets
As analysts at Barron's noted earlier this year, Sandy was the second most expensive hurricane-force storm in U.S. history. Indeed, despite initial insured-loss estimates of $5 billion to $10 billion, the tally finally came in much higher by January of this year -- $25 billion, according to reinsurer Munich Re. Yet, P&I companies have done very well. How did they manage such a feat?
One big reason for their success is that each was able to raise premiums last year, and Sandy gave them ample reason to hike rates substantially. Lousy investment returns throughout the industry have also prompted policyholder-owned mutual insurers to raise rates -- making it less of an issue when publicly held companies do the same, particularly since they have shareholders to consider.
Keeping it all in perspective
Despite NOAA's dire announcement, keep in mind that the agency is speaking of all storms that develop in the Atlantic Ocean, many of which will never make landfall. Even with the recent calamity in Oklahoma, there were a total of 76 tornadoes swirling around one-fifth of the country for three days -- which means the damage could conceivably have been much worse.
This hurricane season promises to be a busy one. But, unlike those that are unfortunate enough to be directly in the path of potentially destructive storms, property and casualty insurers will likely ride it out just fine.