AZ Republic Business Column
By Russ Wiles
Sunday, February 13th, 2011

That freak hailstorm in Arizona last year did more than damage roofs and cars around the Valley - it also blew open holes in insurer finances.

Publically owned insurance companies have started to report fourth-quarter earnings results that show the impact from the early-October storm - and the results point to costs approaching or possibly topping $1 billion.

An exact number isn't known and may never be available because some of the biggest insurers operating in Arizona - including State Farm and Farmers, the two biggest - aren't stockholder-owned companies that must disclose key financial results.

But No. 3 Allstate, which is shareholder-owned, provides an indication. The company said Wednesday that its net income slumped 43 percent in the fourth quarter, largely due to the Arizona storm. The auto-and-home insurer reported catastrophe losses of $537 million during the quarter, up from $328 million during the final three months of 2009.

Allstate said the results for the latest quarter reflected 20 catastrophe events, highlighted by the Arizona hailstorm, which resulted in estimated losses of $355 million.

American Family Insurance, another top-five insurer in the Arizona market, initially estimated the roughly 10,000 claims it had received by late October would cost about $40 million. But now the company is anticipating 20,000 claims costing at least $100 million, said spokesman Steve Witmer.

"The numbers are up quite a bit since October," he said.

Another big player, Progressive, reported that it incurred catastrophe losses of $31 million in October, up from $3 million in October 2009.

Those losses were "primarily the result of the severe hailstorm in Arizona early in the month," the company said at the time.

A spokeswoman said Progressive hadn't released any updates.

Because State Farm, Farmers and many of the more than 100 other Arizona insurers don't release detailed quarterly results, it's difficult to come up with a precise cost estimate for storm damage.

But State Farm spokesman Gus Miranda said his firm received 44,000 claims. If State Farm's loss pattern is similar to those of American Family or Allstate, its damages could easily be in the nine-figure range.

Meanwhile, all those claims are pumping cash into the Valley's economy for new roofs, air-conditioners, vehicles and more.

David Ortega, an architect and former Scottsdale council member who serves on the city's development-review board, believes storm-related repairs will continue for at least 10 more months and aid not just homeowners, businesses and contractors but also local governments in the form of rising sales-tax revenue.

"It really has helped the economy," said Ortega, who estimates claims in Arizona could approach $2 billion. "This is a widespread stimulus program."

But it's also an unusual one, which is good for policyholders. Despite the sizable financial impact from the storm, industry officials say it won't likely push up premiums.

"In general, one weather-related event like the October hailstorm won't have an impact on rates," said Ron Williams, executive director of the Arizona Insurance Council.

Insurers, he said, are required to hold reserves to cover claims and typically won't hike premiums unless there's a pattern of weather risks.

Still, Arizona's storm played a role in what turned out to be a damaging 2010.

Globally, natural catastrophes such as earthquakes and hailstorms, along with man-made disasters such as the BP Deepwater Horizon explosion, cost an estimated $222 billion in 2010. That was more than three times the $63 billion in setbacks for 2009, according to estimates released in December by insurer Swiss Re. Of those losses, insurers absorbed $36 billion, marking a 34 percent rise from 2009. Many of the losses in Asia and elsewhere weren't insured.

Arizona's storms didn't make the list of eight most-expensive disasters that Swiss Re cited. At the top was an $8 billion earthquake in China and $2.9 billion in storm losses in Europe. Two series of wind and hailstorms in the U.S. did make the list. They hit during the spring.

Offsetting some of the havoc cited above was an unusually mild hurricane season, Swiss Re said.