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U.S. insurers hit hard by 2011 catastrophe losses

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U.S. insurers hit hard by 2011 catastrophe losses

Catastrophe losses continue to mount for insurers and reinsurers across the globe, according to several reports released in the past week.

For example, in a report issued last week, A.M. Best Co. Inc. said catastrophes cost the U.S. property/casualty insurance industry an estimated $38.6 billion in losses during the first nine months of the year.

That is an increase of 140% from the amount of catastrophe losses suffered by U.S. insurers during the same period in 2010, according to the Oldwick, N.J.-based rating agency. This year's nine-month estimated total is nearly double the $19.6 billion in catastrophe losses sustained by U.S. insurers during all of last year.

Best said the “vast majority” of the losses were associated with tornadoes and hailstorms that struck the Midwest and Southeast during the spring, as well as Hurricane Irene in September and blizzards in the Midwest.

In addition, some U.S. insurers suffered losses in catastrophes outside the United States, including the March earthquake and tsunami in Japan.

In an analysis, Best said that while the natural catastrophes will have a material impact on the property/casualty insurance industry from an earnings perspective, Best “believes the overall industry's capital will effectively absorb these catastrophe-related losses.”

An Aon Benfield Analytics report released last week that concerns the global reinsurance market noted the impact of catastrophes on that sector but said reinsurers maintain “robust capital positions.”

Aon Benfield, a unit of Chicago-based Aon Corp., said global reinsurer capital declined 4% to $450 billion as of Sept. 30 compared with the end of last year. The report, “Aon Benfield Aggregate: Nine Months Ended September 30, 2011,” which tracks the financial performance of 28 leading reinsurers, said the drop reflects a decline of 6% in the first quarter of the year. That was followed by growth of 1% in the second and third quarters, according to the report.

“Despite the elevated level of catastrophe losses over the last two years, ABA financial strength ratings have remained broadly unchanged, reflecting continued robust capital positions,” according to the report.

The report also said the combined ratio for the 28 companies deteriorated 14.3 percentage points to 110.5% during the first nine months of the year compared with the same period a year earlier, with $20.7 billion of pretax natural catastrophe losses representing 25% of net premiums earned. That translated into a property/casualty underwriting loss of $8.7 billion, according to the report.

“Overall, the ABA reported a pretax profit of $8.2 billion for the first nine months of 2011, a 64% reduction relative to the prior-year period,” said the report. The companies in the aggregate posted net income of $7 billion for the first nine months of the year.

Meanwhile, insured losses from months of flooding in Thailand continued to mount, according to several reports last week. Aon Benfield said the floods could cost insurers more than $10 billion, while Swiss Re Ltd. said insured losses could range from $8 billion to $11 billion.