Reinsurers of U.S. hurricane risk will play an important role in covering the losses of Hurricane Ike, which battered the Texas coast on Saturday, causing estimated insured property damage between $6 billion and $18 billion, according to a Bermuda insurer-reinsurer association.

The reinsurers are predominantly located outside of the United States, with a large number located in Bermuda, the Association of Bermuda Insurers and Reinsurers (ABIR) said in a statement.

"The global reinsurance market plays an integral role in spreading U.S. hurricane risk around the world. Without it, the risk would be concentrated in a single state or geographic region, with the result being higher insurance costs for U.S. consumers," ABIR said.

Bermuda's insurers provide an estimated 66 percent of the reinsurance purchased by the Texas Windstorm Insurance Association (TWIA), ABIR explained. The TWIA protects the property most exposed to hurricane damage in Texas.

ABIR said it is possible that TWIA will collect on the entire amount of its approximately $1.5 billion in hurricane reinsurance coverage. If so, Bermuda's carriers will pay approximately $1 billion of the TWIA reinsurance recovery.

ABIR added that this will directly aid Texas taxpayers, because without the reinsurance there would be a bigger hit to the state treasury, based on the current TWIA assessment framework.

ABIR President Brad Kading told National Underwriter, "The bigger the losses, the more they get shifted to reinsurance--with the exception of TWIA."

He noted that "the TWIA layers obviously have been penetrated, so it's just a question of how much of the TWIA reinsurance program is exhausted. I think the TWIA program was penetrated for Hurricane Gustav."

Based on an analysis of reinsurance premium from insurers most exposed to hurricane risk in Texas, ABIR said Bermuda's insurers will provide an estimated 45 percent of the reinsurance claims that eventually will be paid to insurers for damage caused by Hurricane Ike.

Although it is impossible to accurately forecast total insured losses for Ike at this time, ABIR said the more severe the damage from Hurricane Ike, the more reinsurers are likely to pay for actual insured hurricane damage.

For example, if Hurricane Ike's insured losses are $10 billion, insurers will primarily pay for these costs (with exceptions including the TWIA payment noted above). If Ike's insured losses are $25 billion, reinsurers may pay $10 billion to $15 billion of the eventual hurricane claims.

Based on these estimates Bermuda reinsurers' share of these losses may then be $4 billion to $7 billion, ABIR said.

In the period from 2001 to 2008, ABIR observed that Bermuda insurers have paid about $25 billion in insured and reinsured U.S. property-catastrophe losses. Additionally, the reinsurers have remained financially strong, despite their losses, ABIR said, adding that the reinsurers also have remained "committed, and indeed have expanded their capabilities to provide protection to U.S. insurers and their property insurance clients."

ABIR estimated that Bermuda insurers and reinsurers paid $17 billion in claims in 2005 for Hurricanes Katrina, Rita and Wilma. The association said that according to published reports, Bermuda reinsurers paid out enough to rebuild 45,000 homes in Louisiana and 24,000 homes in Mississippi.

In the years 2006-2008 the reinsurers have "continued to provide protection to support U.S. consumers and expanded their capacity (either through their own underwriting capacity or via capital markets resources) to provide even more protection," ABIR noted.

Bermuda's reinsurers are "well regulated" by the Bermuda Monetary Authority, have high financial strength ratings and are well capitalized to absorb these losses, ABIR said.

"Losses such as these are expected by reinsurers," the association said. "Reinsurers will reimburse their U.S. insurance company clients promptly as claims are submitted."

ABIR said it has 23 member insurance companies, all based in Bermuda. Of these companies, 14 have U.S. subsidiary insurance companies, employing 10,000 people in the U.S. These U.S. subsidiaries also will write U.S. insurance for hurricane risk. "Thus many ABIR members will be paying claims both from their U.S. subsidiaries and their Bermuda parent corporations," ABIR said.

Special Reports /

Bermuda Reinsurers Play Big Role In U.S. Cat Market

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