Opinions Divide On Hurricanes' Rate Impact

Opinions Divide On Hurricanes' Rate Impact

By Steve Tuckey

NU online News Service, Sept. 29, 4:33 p.m. EDT?Insurance professionals differ widely as to how much of a rate increase Florida property owners will have to endure in the aftermath of four hurricanes in the past two months.[@@]

Sam Miller, executive vice president of the Florida Insurance Council, an industry trade group, took exception to widespread media reports that rates will rise 15-to-20 percent to compensate for the industry losses.

"Nobody has a clue what is going to happen now and that is just pure speculation," he said.

But, he noted that after Hurricane Andrew in 1992 rates were raised 100 percent statewide and almost 300 percent in South Florida.

Four storms in one year is not out of the realm of possibility according to the models that produced after Andew, Mr. Miller said.

And Mr. Miller added that the likelihood that rates primary companies pay into the Florida Hurricane Catastrophe Fund will not go up this year is another good sign on the pricing front for consumers.

How much private reinsurance rates will go up remains unknown at this point, said Mr. Miller. Most analysts have agreed that such rates will no longer fall, but any significant rise is by no means certain, he said.

Policyholders throughout the state could see an assessment from the state's insurer of last resort, Citizens Corp. But it seems unlikely it would reach the maximum of 10 percent, Mr. Miller asserted.

Lehman Brothers analyst Christopher Winans sees requests for rate increases in the 20-to-25 percent range as a distinct possibility. But all such applications will face some tough scrutiny from the regulators. Top Florida insurance regulator Chief Financial Officer Tom Gallagher has already expressed public skepticism about the need for any increases.

"The bottom line is insurers lost a ton of money. They are going to want to recover that one way or another," Mr. Winans said.

While insurers have been planning on such catastrophes for 12 years, the unprecedented scope of the losses from this year's storm will raise new questions.

"Regulators and insurers will look at this and ask if something has changed, and do we need higher rates to recover some of these unusual losses," Mr. Winans said.

Reinsurers will also be examining their rates, particularly companies such as Bermuda-based Renaissance Re.

The company announced Wednesday that it expects the four storms to have a combined negative impact on the company's third-quarter earnings of about $425 million. It also said it suffered greater losses than comparable companies due to its decision to pursuer a larger share of the Florida market.

Nonetheless, Prudential analyst Jay Gelb upgraded the company to neutral weight from underweight due to the expected stabilizing of the property catastrophe secondary market.

"RNR should benefit the most because it is the world's largest writer of property catastrophe reinsurance," Mr. Gelb wrote to investors this week.

Other companies expected to similarly benefit are Ace Limited and XL Capital, both in Bermuda.