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Harvey's Approach Follows Costly 2016 for Texas Property Insurers

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Harvey's Approach Follows Costly 2016 for Texas Property Insurers

Prospective losses from Hurricane Harvey could thwart the insurance industry's hopes for a recovery from poor 2016 results in certain property lines of business in Texas.

Severe hailstorms in San Antonio and north Texas in the spring of 2016 triggered insured losses estimated by Swiss Re to total $4.68 billion. The industry's direct incurred loss ratio of 86.6% in select lines of commercial and personal property business was the third highest for the state in the past 20 years, and it was well above the 20-year median of 60.3%.

Hurricane Ike, a 2008 event that the Property Claim Services unit of ISO ranked as the sixth-costliest U.S. catastrophe in 2016 dollars, contributed to a Texas direct incurred loss ratio of 129.1% for that calendar year in the combination of the following business lines: allied lines, commercial and personal auto physical damage, non-liability commercial multiperil, farmowners multiperil, fire, and homeowners multiperil.

Various articles in the press have already sought to compare Harvey to 2001's Tropical Storm Allison, which triggered severe flooding in Houston and across southeast Texas after it stalled over the region and led a number of insurance companies to issue earnings warnings ahead of the release of their second-quarter results. The industry's Texas direct incurred loss ratio in the selected property insurance lines swelled to 98.2% that year, including results in excess of 100% in the allied lines, non-liability commercial multiperil and homeowners businesses.

Risk Management Solutions said in a 2001 report that Allison triggered insured losses of approximately $2.5 billion and total damages in excess of $6 billion, much of which was concentrated in the Houston metropolitan area. It classified the event at the time as the costliest U.S. tropical storm on record, despite Allison having generated maximum sustained winds of only 57 miles per hour.

The Texas direct incurred loss ratio in the homeowners line of just more than 87.0% ranked fourth highest on a nationwide basis, behind only Montana, Nebraska and North Dakota. The 2016 Texas direct incurred loss ratios in the allied lines and the non-liability portion of the commercial multiperil business each topped 100%. The state's direct incurred loss ratio in the personal auto physical damage line hit a new 20-year high of nearly 84.7%.

San Antonio-based United Services Automobile Association referenced the hailstorm in its home market in a discussion of its $169.2 million 2016 net underwriting loss in its annual statement. The company reported that the event, which took place during "a year of historic catastrophe losses and claims," impacted an area that includes a "significant concentration of policyholders."

USAA, at the group level, ranked as the No. 4 writer in the aforementioned commercial and personal property lines of business in the Lone Star State, behind the group led by State Farm Mutual Automobile Insurance Co., Allstate Corp. and Farmers Insurance Group of Cos., and ahead of Liberty Mutual Holding Co. Inc., Progressive Corp., Berkshire Hathaway Inc., Texas Farm Bureau Group, Nationwide Mutual Group and Travelers Cos. Inc.

Among the top 20 groups in the applicable lines of business based on direct premiums written, the 2016 direct incurred loss ratios in the combination of the property lines were the highest that 11 of them had posted in Texas since 2008. For three of the top 20 groups, the 2016 Texas loss ratios in those lines were their highest since prior to 2008. Historical results reflect P&C groups as they currently exist, including the impact of acquisitions.