The property-casualty insurance industry can count on having to endure a year of catastrophes inflicting insured losses nearly double last year's record of $58 billion, the industry's leading economist warned.
"We are on a trajectory for a $100 billion year," said Robert Hartwig, senior vice president for the Insurance Information Institute in New York.
Mr. Hartwig, speaking here at the annual National Council on Compensation Insurance seminar, did not say when this might happen, but gave the impression it could be soon–mentioning the recent increase in intensity and frequency of storms.
He cited Colorado State University projections that there is an 81 percent chance of a major hurricane hitting somewhere on the U.S. coast, and forecast a 195 percent increase in tropical cyclone activity this year.
Displaying a graph with the total value of insured coastal properties in various states, Mr. Hartwig commented that Florida still has "a lot to be destroyed"–citing a statewide figure of nearly $2 trillion.
His chart showed New York in second place with $1.9 trillion, and Texas, which he called "a mega-disaster waiting to happen," with $740 billion.
Looking at the claims pileup from the 2005 storm season, Mr. Hartwig said it was "amazing that the tiny states of Louisiana and Mississippi could generate such outsized losses."
As a result of the latest catastrophe modeling, Mr. Hartwig said rating agencies will require some insurers to carry more capital to maintain the same rating.
Quantifying the effects of the 2005 hurricanes, he said that last year's losses had "burned through 14 percent of net premiums earned" by U.S. p-c insurers.
News reports of insurers being able to withstand the big losses of 2005, he noted, overlooked the storms' devastating effect on reinsurers. "Some are no longer with us–we lost four or five," he added.
Mr. Hartwig noted that the combined ratio for reinsurers in 2005 was more than 124, and that there is currently a scramble for reinsurance among many primary carriers. Reinsurance prices have increased 25 percent nationally and have gone higher in certain areas, while coverage is being sold with higher attachment points, he said.
In addition, Mr. Hartwig noted that prices for retrocession contracts for reinsurers are higher.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.