Fitch Guide Predicts Active Cat Bond Season

It will be difficult for some insurers to fill some of their reinsurance needs, and the catastrophe bond market will be active, Fitch Ratings' guide on hurricanes predicts.

The guide to hurricanes for insurance investors is aimed at aiding them through the hurricane season that officially started yesterday and runs through Nov. 30.

The special guide, “Hurricane Season 2006: A Desk Reference For Insurance Investors,” offers statistics, discussions on insurance, climate issues, hurricane modeling, incorporation of hurricane risks into the rating process, and a frequently asked questions section.

“Four prominent hurricane forecasting organizations have issued forecasts for the 2006 season and they unanimously predict another above-average hurricane season in terms of the number of named storms, the number of hurricanes and the number of major hurricanes,” Donald Thorpe, senior director, Fitch Ratings in Chicago, said in a statement.

“After back-to-back severe hurricane seasons in 2004 and 2005, investor interest in the effects of hurricanes on insurer financial strength and debt servicing capacity is greater now than any time since Hurricane Andrew in 1992,” added Mr. Thorpe.

Among some of the discussion points raised in the guide, Fitch said it believes primary insurers will bear the brunt of losses this season as some are having problems with their reinsurance renewals.

Reinsurers do not want to experience the heavy losses they suffered in 2005, so premiums have increased dramatically and capacity has been cut back to reduce exposure. The alternative, Fitch said, is to either go bare or turn to the alternative markets, such as catastrophe bonds and industry loss warranties.

Fitch predicts an active catastrophe bond market, but said selling Atlantic hurricane exposed risks will be a challenge.

The guide is available on the rating service's Web site to members at www.fitchratings.com, under Financial Institutions, Insurance, Special Reports.