Joplin Tornado Sparks New Reinsurance Requirement

The near failure of several Missouri insurers following the May 2011 Joplin tornado has prompted state regulators to require local “farm mutuals” to purchase reinsurance to cover possible severe losses.

The new regulation — which will fall into place on December 31 — will require mutual insurers in the state to purchase annual aggregate reinsurance to cover 100% of losses in excess of a predetermined attachment point, according to the Missouri Department of Insurance. The attachment point will be determined by a “calculation form” provided by the regulator with the goal to prevent an annual loss no greater than 20% of the company’s prior year surplus, according to the filing.

The regulation also says insurance regulators may require “additional reinsurance if necessary” in order to protect policyholders.

“Regulators and insurance industry groups teamed up to strengthen this regulation, which was vitally needed,” said John M. Huff, director of the Missouri Department of Insurance in a statement. “This new requirement prevents farm mutuals from taking on more risk than they can handle. That protects their customers, who are mainly rural Missourians.”

Farm mutuals serve rural customers that have difficulty finding property coverage from traditional property and casualty insurers, according to a statement from the regulator.

In December of last year three farm mutual owned by Barton Mutual Group were place into receivership after losses following the Joplin tornado. The companies — Barton Mutual Insurance, Gateway Mutual Insurance and Cape Mutual Insurance – faced 875 claims from the Joplin storms totalling approximately $48 million.

The companies had about 41,000 policyholders and premium sales of nearly $29 million in 2010, according to the insurance department.

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