Analysts: Charley May Not Stiffen Pricing

By Daniel Hays

NU Online News Service, Aug. 16, 4 :17 p.m. EDT?The damage inflicted by Hurricane Charley appears unlikely to have a major impact on softening property-casualty insurance prices, according to some analysts.[@@]

Despite estimates that insured losses could range from $5 billion to $10 billion, the destruction caused by the storm was "unfortunate but not unexpected," said William Wilt of Morgan Stanley Equity Research in New York.

Mr. Wilt said insurers and reinsurers were expecting two-to-four major storms, and based on the information he has, insurers have the resources to deal with the levels of loss involved.

According to Morgan Stanley's analysis of Hurricane Charley, the firm thinks it "unlikely this will meaningfully shape industry pricing."

Depending on the final size of the losses, the firm said that Charley "could temporarily stem a decline in rates," but Morgan Stanley is keeping a cautious outlook for the sector.

At Standard & Poor's in New York, analyst Steven J. Dreyer said at this early point the hurricane's loss impact on the market is hard to tell, but if the insured loss ends up closer to the $5 billion end of the spectrum, it will probably not put a brake on the softening of prices.

"We've talked to a number of the [catastrophe] reinsurers, and their initial thoughts are that it's a pretty light hit for them," he related. Among various companies, however, he noted there could be a lot of variation in the impact.

If the hurricane destruction were to amount to a "high end" loss, it would affect the catastrophe reinsurers and "would probably halt aggressive price cutting" and "would firm prices for sure."

However, Mr. Dreyer noted that at $15 billion?the high end of estimates thus far--the storm damage would be smaller than the historic losses of Hurricane Andrew, which he said the market used as a base to configure its operations.

S&P, in its analysis, noted that the vast majority of insurers in the Florida homeowners market "are subsidiaries of large national insurers, raising the question of whether the parents would support their stricken charges or leave them orphaned to the ravages of nature."

Donald F. Thorpe, an analyst with Fitch Ratings in Chicago, said that at this point, with loss estimates still uncertain, it is hard to gauge the impact on pricing.

He also said it was difficult to estimate how much of the loss will be absorbed by reinsurers. Without reinsurance, if the loss were entirely retained by the U.S. primary property-casualty insurance industry, "it could have an impact on the combined ratio of 1.5-to-3 points," Mr. Thorpe said.

Both Fitch and S&P said that Charley was likely to be the first test of Bermuda-based property-catastrophe reinsurers that started up in 2001. Fitch said it will "provide tangible information about the group's aggregate catastrophe management and risk-selection skills"

S&P said that for Bermuda startups, Charley will "represent their first brush with a large natural catastrophe event since coming into existence."

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Analysts: Charley May Not Stiffen Pricing

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