Canada absorbs cat, U.S. takes steps

Foods that hit New Brunswick and Nova Scotia the week of July 26 have formed one of the largest insured losses to hit Atlantic Canada this decade. Close to 900 claims have been submitted to date and insurers predict damages will reach $5.6 million in Moncton, New Brunswick and $2.5 million in Antigosh, Nova Scotia. The figures will be more accurate when the Insurance Bureau of Canada releases final results in the coming months.

These losses come on the heels of three Quebec catastrophe events in June and July which early results tag as costing the industry $65 million. On June 6, Shawinigan, Quebec was hit with a storm that has resulted in $15 million in claims paid. On July 5 and 6, parts of Quebec including Montreal were hit with a hail storm and Drummondville, Quebec was the target of a tornado. The total claims costs for these two days has amounted to $50 million, and IBC sources indicate the number could rise significantly as it does not as yet include losses from the Drummondville cat event.

In the U.S., the Insurance Services Office has released its second-quarter catastrophe claim information which estimates the industry paid out $3.25 billion in cat-related claims, an improvement over 1998’s second quarter $4.5 billion total. At the six month mark of 1999, the industry has spent $5.1 billion on approximately 2.1 million claims for 18 catastrophic events. That’s nearly $460 million less than the $5.5 billlion in losses in the year-ago period.

Despite the mild improvement, U.S. insurers have looked to the capital markets to brace themselves for the hurricane season expected to continue through November. According to the ISO, through mid-1999, investors have committed about $3 billion in capital markets to vehicles for securitizing catastrophe risk, most of in catastrophe or “Act of God” bonds. Catastrophe option indices — based on insurers’ loss information provided by ISO — are traded on the Chicago Board of Trade and Bermuda Commodities Exchange.