Karen Clark & Company
Residential, commercial, and industrial property values in the US continue to increase faster than GDP growth and the general rate of inflation. According to KCC estimates, insured property values increased by nine percent from 2012 to 2014.
In aggregate, building values now exceed $40 trillion, and when contents and time element exposures are added in, estimated insured property values swell to over $90 trillion. Along with increasing values, there are highly concentrated pockets of exposure, particularly in regions vulnerable to natural catastrophes.
For example, tier one counties along the Gulf and Atlantic coasts account for over 17 percent of total exposure at $16 trillion. Six counties have over $1 trillion of exposure each and on a combined basis, account for more than 12 percent of the US total. One county—Los Angeles—accounts for over three percent of exposed property values.
One implication of increasing concentrations of property value is the higher probability of megacatastrophe losses. A major storm or earthquake has not occurred in a densely populated metropolitan area such as Galveston-Houston, Miami, or Los Angeles for decades.
This study shows that when a large magnitude event occurs in specific concentrated areas, the losses will be multiples of the PMLs (Probable Maximum Losses) the insurance industry has been using to manage risk and rating agencies and regulators have been using to monitor solvency. Insurers typically manage their potential catastrophe losses to the 100 year PMLs, but because of increasingly concentrated property values in several major metropolitan areas, the losses insurers will suffer from the 100 year event will greatly exceed their estimated 100 year PMLs. [H/T: Full Text Sources Online]