Experts: Storm Losses Could Slow Soft Market

Experts: Storm Losses Could Slow Soft Market

By Steve Tuckey

NU Online News Service, Sept. 17, 3:58 p.m. EDT?Don't expect too much movement in property-casualty insurance rates as a result of the cumulative impact of the three hurricanes that have hit Florida over the past several weeks, said industry analysts.[@@]

Brian Schneider, Chicago-based analyst for the Fitch Ratings Service, said at the very least he expects the hurricane activity to stem whatever slight downward movement in pricing in property catastrophe rates has been taking place over the past several months.

The fact that Alabama, where much of the damage from Hurricane Ivan took place, does not have a state-sponsored reinsurance fund will lead to bigger losses for the reinsurance industry.

"We have had some people at Monte Carlo [the annual global reinsurance conference] and the grumblings there are this will stabilize pricing," he said.

With primary and secondary companies now in the process of negotiating reinsurance covers for a Jan. 1 renewal date, any increased storm activity will take on new significance, Mr. Schneider said.

The first homeowner rate hikes will be in Florida itself as a result of potential assessments from other insurance companies on Citizens Corp., which is the state-run insurer of last resort.

Meanwhile, the industry is waiting to see what the effects might be of Tropical Storm Jeanne, which it expected to hit the U.S. coastline. Experts said Jeanne's effects, when added to that of the three hurricanes that already hit Florida, could make the insured storm loss figure equal to the $20.3 billion caused by Hurricane Andrew 12 years ago.

But don't look for the same impact on pricing, Mr. Schneider said. "The industry is in a lot better shape now," he asserted.

Prudential analyst Jay Gelb in a research note said that minus the losses to the government-sponsored entities, the insured damage from the three events could be about $15 billion to $17 billion ? or three percent of industry surplus.

"In our view three percent of industry surplus is not large enough to stem the trend of falling commercial property reinsurance pricing but could further fuel prices in the homeowners insurance market that are likely to bear most of the losses," he wrote.

In addition, the relative ease of entry of a variety of players into the property-casualty reinsurance market could help soften whatever upward effect the storm may have on the reinsurance market, according to a recent report from Standard & Poor's.

"The significant number of new players in 2002 and the capacity they provided, contributed to property-casualty reinsurance exhibiting commodity-like features," said S&P analyst Damien Magarelli. "The various new entrants increased the liquidity within the property-casualty reinsurance market, making it easier for brokers and clients to place exposures on programs through their willingness to provide capacity."