3 Rating Firms Discount Gustav Impact On Rates, Solvency

The firm also does not believe there will be much influence on the creditworthiness of the industry as a whole, adding that few, if any rating changes will result.

Chris Waterman, a senior director in Fitch's Insurance Group in London, was quoted by Reuters as saying the hurricane was "more of an earnings event for reinsurers," with no devastating impact on the industry's capital. He said insured damages are probably in line with projected loss estimates.

He said the event might slow U.S. reinsurers' falling rates, but was unlikely to halt them completely.

S&P called Gustav the latest–and the most severe–catastrophe in a year of an unusually high frequency of modest-sized disasters, along with large individual commercial claims.

The rating firm said this is a contributing factor in the revision of its outlooks on some companies, reflecting adverse turns in their performance as a result of an accumulation of exposures to these modest catastrophes.

It is possible that further accumulated losses from small catastrophes–or a substantial loss from one of the currently developing tropical storms–could have a more material adverse effect on ratings, S&P added.

Should this happen, S&P said the firm believes that compared with 2005–when Hurricanes Katrina, Rita and Wilma struck–the effects would be more pronounced on primary companies and less on reinsurers, because of the generally greater retention of property risk by primary companies over the last year or so.

This will be especially true, S&P said, if the year's pattern of greater frequency and less severity of catastrophes continues.

Best said that although losses from Gustav are considerable in comparison to the overall premiums collected for the coverage of the losses incurred, the insurance and reinsurance markets overall are expected to remain competitive.

In Best's view, losses from Gustav will continue to put pressure on the huge differential between affordable and actuarially sound primary insurance prices in hurricane-exposed regions.

The impact on reinsurance costs in the Gulf region, Best said, is not expected to be significant, but the actual impact will play out over the next few months.

This hurricane season, said Best, is demonstrating the considerable risk that was previously projected, and with three more storms in the Caribbean, there is reason to be concerned over the potential of a Category 3 hurricane with winds from 111 mph to 130 miles-per-hour.

Additional storms, Best said, are likely to bring a dose of reality to the competitive property-catastrophe markets and stem further declines in pricing in 2009. Best said it expects reinsurers are again recognizing that the potential for loss cannot be ignored and the competitive confidence of some underwriters will wane.

Gustav should not be a solvency event for insurers, according to Best. But it said those companies that have a meaningful Louisiana property and Gulf marine market share will be evaluated to determine the extent of the loss relative to Best's loss expectations.

Often events such as Gustav raise more issues relating to risk management capabilities than solvency concerns, Best noted.