Best’s Commentary: Convective Storms Create Difficulties in Diversifying Insurer Portfolios

The growing frequency and severity of convective storms in southern U.S. states is an evolving situation for insurers and reinsurers, as these events are increasingly hampering insurers’ ability to achieve effective diversification of their portfolios, according to a new AM Best commentary.

The Best’s Commentary, “Convective Storms Create Difficulties in Diversifying Portfolios,” notes that insurers and reinsurers rely on geographic diversification in underwriting to maintain a stable, profitable portfolio. However, this is proved more difficult in recent years given the growing number of convective storms, along with the increased intensity of these storms, and the wider geographic areas where storms are occurring.

Recent convective storms (e.g., severe thunderstorms, hailstorms, tornadoes, derechos) that spread through Texas, Louisiana, Arkansas and Mississippi hit Gulf Coast and nearby states historically impacted by hurricanes, adding to the potential perils that can threaten the results of property writers in those states.

“These storms, which struck during hurricane season, only adds to the hazards insurers face during these months and lessens the degree of risk diversification in the portfolios of property insurers.” said Christopher Graham, senior industry analyst, Industry Research and Analytics, AM Best.

The commentary includes the insurance groups or companies writing property in Arkansas, Louisiana, Mississippi and Texas with the greatest geographic concentration in each state. These entities face greater potential of materially impacts from these storms, although State Farm is still the largest writer of overall premiums in each state. The commentary notes that this is unsurprising as national insurers cover most of the property business written in states countrywide, diversifying their portfolios by doing so. At the same time, convective storms through June 2023 have been larger than those seen in first-half 2022. Considering the impact of the storms that hit this region in the first half of 2023, the year is shaping up to be a difficult one for insurers as peak hurricane season looms.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=333933.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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