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Latest storm forecasts see active season ahead

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Forecasters continue to predict that this year's Atlantic hurricane season will be an active one.

In fact, Colorado State University's Tropical Meteorology Project last week predicted that 10 hurricanes, one of which already has occurred, will form this season. The National Oceanic and Atmospheric Administration issued its forecast a day later, in which it said it expects eight to 12 hurricanes.

However, insurance industry observers say the season would have to be extremely destructive to have any effect on the property insurance market.

The Fort Collins, Colo.-based CSU team's forecast was unchanged from one it issued in early June. The CSU forecasters said 18 named storms are expected to form before the hurricane season ends Nov. 30. The team predicted that five of the 10 hurricanes will grow into major hurricanes, packing winds of at least 111 mph.

NOAA called for 14 to 20 named storms, a slight decrease from the 14 to 23 named storms it predicted in late May. It also scaled back its prediction of the number of hurricanes from the eight to 14 it had predicted in May, and changed the number of major hurricanes to four to six from its previous prediction of three to seven.

Despite the predictions, insurance industry experts don't see the hurricanes causing a significant change in the ongoing soft property market.

“There's a lot of excess capital in the property market,” said Lara Mowery, managing director who leads the global property specialty practice at Guy Carpenter & Co. L.L.C. in Minneapolis. She said new insurers and new capital continue to enter the market. “The magnitude of losses to actually turn the commercial insurance market would have to be substantial and, for an overall industry impact, over what we saw in 2004 and 2005,” she said.

“It is unlikely that even an event that is larger than Katrina—$45 billion in today's dollars—would turn the overall property market, unless it is much larger,” Robert Hartwig, president of the New York-based Insurance Information Institute, said in an e-mail. “Areas exposed to hurricane risk would likely experience a tightening, of course, driven by higher primary and reinsurance prices.”

But he said there probably would be little change in other parts of the country or for other property exposures. He noted that insurers experienced about $90 billion in insured catastrophe losses during the 2004 and 2005 hurricane seasons.

“Hurricane-impacted property insurance and reinsurance prices did rise, but the impact was limited to hurricane-exposed areas,” Mr. Hartwig wrote. “The industry is even better capitalized today than it was in 2004-05,” and even a storm causing $45 billion to $50 billion in damage would represent a smaller share of surplus today than five years ago.