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U.S. tornado damage 'manageable' for insurance industry: S&P

U.S. tornado damage 'manageable' for insurance industry: S&P

NEW YORK—The damage caused by U.S. tornadoes thus far this year should be “manageable” for the insurance industry, according to an analysis issued by Standard & Poor's Corp. on Thursday.

The analysis, “Despite the Early Start to the 2012 U.S. Tornado Season, Insured Losses are Manageable for the Industry,” noted a report by catastrophe modeler EQECAT Inc. that found tornado activity through early March was more than double that of the 2005-2011 average.

“Although peak tornado activity traditionally holds off until spring, the high frequency of events early this year are a sharp reminder that severe storm activity during April and May 2011 could persist into 2012,” said New York-based S&P in its analysis. “Insurance and reinsurance companies have barely caught their breath after sustaining more than $100 billion in catastrophe losses from 2011 global events, and they are already assessing this year's damage from catastrophes.”

But S&P noted that estimates of insured damage from the tornadoes ranged up to $2 billion, far lower than the more than $20 billion in insured damages from tornadoes and windstorms in April and May of last year.

S&P said it expects U.S. primary insurers to sustain the bulk of the tornado insured losses, with a more modest impact on reinsurers.

While large national insurers tend to retain most of their exposure to smaller catastrophes such as tornadoes, “smaller regional insurance carriers often make more extensive use of reinsurance, but we believe the impact to these regional players could be more pronounced,” said S&P.

The rating agency also said it does not expect the tornadoes to trigger any of its rated catastrophe bonds.

“Extrapolating this year's early activity as indicative of a highly active 2012 may be premature,” said S&P. “In any case, we will continue to monitor losses from these recent outbreaks and future storm activity for any adverse effects on rated insurers, reinsurers or catastrophe bonds.”

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