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NEW YORK--Standard & Poor's Corp. expects that the property/casualty insurers and reinsurers it rates would be able to endure a repeat of 2005's record hurricane season "without a real diminution in financial strength," the rating agency said in a new report.
Released Monday, the report--"Are U.S. Insurers Ready If the Calm Season Turns?"--notes that insurers enjoyed excellent results in 2006 because of record underwriting profits, additional capital "and the almost complete lack of weather-related catastrophes that year." But the market has become "intensely competitive," with rates for catastrophe property coverage dropping and insurers and reinsurers alike returning to "coastal writing, even in regions with high hurricane risk."
S&P said a severe season could halt the current softening in both primary and reinsurance property/casualty lines. The report notes that while forecasters such as Colorado State University's Tropical Meteorological Project are scaling back their predictions of significantly above-average hurricane season this year, insurers already have had to deal with significant wind-related losses such as the Nor'easter that raked the East Coast in April and the tornado that destroyed most of Greensburg, Kan., in May.
Even before the tornado, "regional insurers had begun looking more closely at strengthening their underwriting and risk mitigation for tornado risk." Globally, insurers have paid billions of dollars for windstorm losses in Europe and Asia.
S&P said the most important aspect of hurricane risk "is the expanded nature of the risk--not just in frequency and severity, but in its worldwide scope. If major catastrophes emerge, how will insurers cope with the losses and replenish their shareholders capital? Will the capital markets react as quickly and as supportively if major catastrophe losses lead to high sidecar or catastrophe bond losses? And what if the capital markets' appetite to support the reinsurance industry changes due to substantial losses? What is certain is that major uncertainty exists around these issues."