Katrina costliest event to hit insurance industry

Standard & Poor’s Ratings Services stated, in a recent report, that Hurricane Katrina is likley the most costly event to hit the global insurance industry. “Even the low side of loss estimates (about $35 billion) place it at almost twice the cost of the Sept. 11, 2001, attacks and more than Hurricane Andrew with insured losses (inflation-adjusted) of about $22 billion and the 2004 hurricane season with combined losses of $22.7 billion,” Standard & Poor’s credit analyst Thomas Upton says. Although it had appeared that the insurance industry was softening, as a result of Katrina, few now believe the softening will persist. Insured losses were initially projected at no more than $15 billion but after less than three weeks the total economic damage estimates increased to $125 billion and the insured loss estimates were up to a high of $60 billion. The report "Hurricane Katrina Insurance Industry’s Costliest Event” examines these estimates and the possibility that these losses might climb even higher. Some companies are currently releasing estimated liabilities and losses resulting from Katrina. FM Global’s preliminary estimates indicate its potential net liability after reinsurance and reinstatement costs from Hurricane Katrina will be US$300 million pretax. This figure represents less than 11 loss ratio percentage points, within the commercial and industrial property insurer’s loss ratio plan for 2005.The Company’s claims adjusters cannot, however, fully quantify the total loss exposure at the moment, as access to some damaged areas like the Gulf Coast region is limited. Arch Capital Group Ltd. also sated its anticipated losses. The Company expects Katrina-related losses will range from US$110 million to US$160 million.Arch Capital says this estimate is based on industry-wide loss assessments that range from US$25 billion to US$35 billion.”Due to the size and complexity of the storm, there is The magnitude of Katrina has lead to total loss uncertainty regarding potential coverage. "Actual losses may increase if the company’s reinsurers fail to meet their obligations to the company or the reinsurance protections purchased by the company are exhausted,” according to Arch.