Katrina Keeps Raters Reassessing Carrier Losses

The insurance industry has yet to find calm financial waters in the aftermath of Hurricane Katrina as companies continue to adjust losses and rating agencies try to understand the future health of the individual players.

Chapel Hill, N.C.-based James River Group Inc. increased its loss range estimate from $2-to-$2.6 million to $14-to-$16 million, or $1 to $1.18 per diluted share, net of reinsurance and including reinsurance reinstatements, the company said.

James River said its initial estimate was based on catastrophe modeling estimates. But specific account information indicates losses to be greater than the models. The company also said it expects the losses to be greater than its reinsurance limits treaty. A portion of the loss in excess of the carrier's cat reinsurance limits will be shared with the company's quota share reinsurer.

James River did not disclose what those percentages would be.

There is a full cat reinsurance limit available following Hurricane Katrina as a result of reinstatement of premium payments. It said it has not received reports of material claims from Hurricane Rita.

Katrina struck Louisiana, Mississippi, and Alabama on Aug. 29, followed by Rita almost a month later, which hit the Texas and Louisiana boarder coast. Rita, slightly weaker than Katrina, still left substantial damage in her wake.

J. Adam Abram, president and chief executive officer of James River, said the company would suspend underwriting in the property market, but would continue to write in the casualty markets.

The company wrote its first policy in July 2003. It said it believes it has "sufficient financial flexibility to withstand these losses" and support growth in the casualty business.

Today, Standard & Poor's added Bermuda-based Aspen Insurance Holdings Ltd. to its Credit Watch list, with negative implications. Its losses are estimated at between $840 million and $925 million, up from a previous estimate of $590 million.

One piece of good news was that S&P and Moody's Investor Service changed their ratings on ACE Limited. S&P removed the carrier from Credit Watch, giving it a stable rating, and Moody's changed its rating from negative to stable.

ACE will sell an estimated $1.25 billion in ordinary shares in a public offering to fund growth opportunities in the global primary and secondary insurance markets.

The Bermuda-based company said it also will offer $187.5 million of ordinary shares, which are subject to a 30-day option.

The company updated its Hurricane Katrina loss estimates, saying it expects a net loss of $593 million, including losses of $191 million of total primary insurance and $402 million from reinsurance.

The carrier said it expects total net losses related to Hurricane Rita at $100-to-$150 million.

Responding to last week's downgrade by S&P and A.M. Best to PXRE, Jeffrey L. Radke, the Bermuda-based reinsurer's president and chief executive officer, said the company was disappointed with the decisions and that's its 23-year history was a strong indicator that it could withstand these losses. It also pointed out that its plan to raise $475 million in capital from the investor market would give it a strong balance sheet for 2006.