The 2005 storm season should not have been the surprise it was to the insurance industry, according to a leading securities firm analysis.

David Small, an analyst at Bear Stearns in New York, said that scientists have been discussing storm frequency and severity increases for quite some time now, while modelers have produced scenarios giving fairly accurate insight to potential losses from large storms.

This input from modelers and scientists, he said, has been highlighted during a series of conference calls he has held over the past several weeks, including one yesterday with AIR Worldwide modeler Frank Fischer.

"In our view, it seems the inadequacy of previous price levels had more to do with the excess underwriting capacity that had developed during the hard market from 2000 through 2004 than with meaningful underestimation of risk in the models," Mr. Small wrote.

During the call, Mr. Fischer, who is the primary insurance marketplace leader for the Boston-based catastrophe modeling company, said the widespread notion that the models did not work last year was not quite accurate.

"AIR's review of the data and benchmarking of their estimates against underwriters' reported losses indicates that their models were reasonably accurate," Mr. Fischer said on the call.

Many of the issues that arose were due to incomplete or inaccurate exposure data such as missing locations, incorrect replacement value and incorrect property coding used by underwriters in the modeling process.

"Since the storms, we have heard that underwriters understand the 'garbage in, garbage out' problem and are working to improve the data input into the models," Mr. Small wrote. "A concern for investors is that it is difficult to independently assess the progress made."

Even without the increased risks associated with higher hurricane frequency and severity, aggregate loss values are rising dramatically due to factors such as heavy development in the most catastrophe-exposed areas, Mr. Small wrote.

"Looking forward, continued exposure growth alone could cause a doubling of loss expectancies from a given hurricane over the next decade," he wrote.

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Insurers Had Tools To Foresee '05 Loss: Analyst

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