New York--Catastrophe events have always been a fact of life for property insurers, but now severity as well as frequency of such losses is on a significant upswing, an analyst at an insurance conference here observed.

Speaking here at the S&P 2005 Insurance Seminar in New York, S&P Managing Director Damien Magarelli cited numbers from 2004 to illustrate the point that property-CAT losses may indeed be on the rise for insurers.

Last year, Mr. Magarelli noted, there were $120 billion in economic damages worldwide, including $46 billion in damages for property insurers. Among those losses, 68 percent occurred in North America.

In the 2004 third quarter, Mr. Magarelli also recalled, an unprecedented four consecutive hurricanes in the Southeast U.S. caused more than $22 billion in insured damages. But as unusual as those hurricanes were, "such a series of events is not so unexpected," said Mr. Magarelli. "Property-catastrophe is one of the most profitable insurance lines, but also one of the most volatile," and becoming more so in recent years, he noted.

Huge catastrophe loses are certainly not confined to North America. In Japan, for example, there were 10 typhoons last year that caused more than $6 billion in damages. And then in the Indian Ocean, there was a seaquake last December that caused losses nearing $5 billion.

Further, there is a man-made factor that's increasing the severity of losses from catastrophe events. S&P noted population growth in coastal areas as a contributing factor.

In the United States, more than half of the population now lives within 50 miles of a coastline, acutely increasing the likelihood of greater damages from hurricanes. Other relevant factors that also boost loss value include higher building values and monetary inflation.

"But insured losses from natural disasters are 15 times higher today than they were in the 1960s, even after adjusting for inflation," Mr. Magarelli said. He added that the frequency of catastrophic events may also have been on the rise. According to the U.S. Environmental Protection Agency, he said, there were three times as many natural catastrophes in the 1990s than three decades ago.

Prospects for this year aren't looking very rosy either, according to S&P. The Tropical Storm Risk insurance group at the University College of London predicts an 80 percent chance of an above-average hurricane season and that U.S. land-falling hurricane activity in 2005 will be "160 percent of the average," S&P noted.

In conclusion, Mr. Magarelli advised, without strong catastrophe risk management, prospective earnings for many insurers might not remain as high as historical results.

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Analyst Warns Of Rising Trend In CAT Losses

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