Swiss Re Says P-C Market Could Withstand Another Katrina

NU Online News Service, June 4, 3:23 p.m. EDT

The U.S. property-casualty insurance market would be able to handle another Katrina-like event this year, and there is capacity to issue catastrophe bonds post-event, representatives from Swiss Re said.

They voiced those views at an Insurance Information Institute (I.I.I)/Swiss Re webinar today titled, "2009 Hurricane Season: Financing Catastrophe Risks Amid the Economic Crisis."

Dan Ozizmir, managing director and head of insurance linked securities, Swiss Re Capital Markets, and Bill Dubinsky, director, p-c insurance linked securities, Swiss Re Capital Markets, noted that there has been a reduction in the amount of capital available over the last year in the insurance linked securities market.

But they also said that market is stabilizing now, and new capital is coming in.

Mr. Dubinsky said Swiss Re believes around $3 billion of cat bond issuance will be placed in 2009, and he added the year has started well, relatively speaking, with investor appetite stabilizing and many dedicated funds expecting an increase in capital moving forward.

Robert Hartwig, president of the I.I.I., said globally, capital is scarcer, and he said the U.S. p-c capital base shrank by 12.9 percent as of year-end 2008.

Still, he noted capital is beginning to free up. Banks have been able to raise tens of billions in new capital recently, Mr. Hartwig said, and insurers should be able to do the same, especially since they are healthier than banks.

Pointing to the relative health of p-c insurers, Mr. Hartwig said capital in the industry is still high by historical standards, despite some recent erosion.

He said the ratio of insurers' premiums relative to surplus is more favorable that at any time immediately preceding a major hurricane.

Additionally, Mr. Hartwig said despite financial crisis, 81 percent of insurers had their ratings affirmed, and 4 percent upgraded. Only 4 percent have been downgraded, he added.

He said state-run markets are more vulnerable this hurricane season due to shaky financial ground, and because they are heavily dependent on credit markets to finance losses after the fact. Insurers, he noted, "have money in the bank ahead of time."

Speaking to a possible federal government role in catastrophe insurance, Mr. Hartwig noted the federal government is essentially broke, and he wondered what kind of role it will be able to play going forward.