LONDON (Reuters)—U.S. property/casualty insurers have sufficient capitalization to withstand a potentially strong hurricane season, despite a slight drop in pricing, according to U.S. specialty property writer FM Global.
“The global property insurance industry is well capitalized at the moment following strong underwriting results from a successful 2009 for insurers, and recovering financial markets,” Ruud Bosman, vice chairman of the board of directors of FM Global, told Reuters in an interview.
As such, the industry would be able to deal with a busy hurricane season, or any significantly sized storms, he said.
Private forecaster WSI expects the 2010 Atlantic hurricane season to produce 20 named storms, 11 hurricanes and five intense hurricanes of category 3 or greater, posing a heightened threat to the U.S. coastline.
Insurers can face tens of billions of dollars in claims when major hurricanes hit populated areas—such as when 2005’s Hurricane Katrina led to more than $40 billion of claims, making it the industry’s most costly natural disaster.
A report from Fitch Ratings this month found the financial stability of the industry has been solid in the last 10 years, despite numerous challenges.
“The industry’s growth rate in premiums and capital has been relatively slower than the past, but Fitch believes this reflects the industry’s maturity, as well as the relatively low economic inflation of the past decade,” said the report, which examined financial performance for the property/casualty insurance industry and the 25 largest market participants on a statutory basis over the past 10 years.
Underwriting performance—in which FM Global topped the list with the best 10-year aggregate statutory underwriting margins—reflected the benefits of rate increase taken in prior years as well as favorable loss reserve development that more than offset significant catastrophe losses in 2005 and 2008, said Fitch.
“If you compare the industry today with it 15 to 20 years ago, we have much more knowledge about the impact of large events—the notifications of an upcoming event are better and the impact of an event can be minimized through structural and engineering work,” he said, citing February’s Chilean quake as an example of a major catastrophe whose impact was reduced because of the country’s earthquake-resistant construction codes.
Overall insured losses to local insurers from the magnitude-8.8 quake were limited as the result of well-established risk-transfer arrangements and catastrophe-protection tools, as well as the mandated earthquake reserves set aside by all P/C insurers.
“The same applies to a hurricane event,” said Mr. Bosman.
The 2009 season only had three hurricanes and was the quietest year since 1997. Many P&C insurers, including Chubb, CNA Financial Corp. and FM Global posted strong results in 2009, gaining from lower catastrophe losses.
Property pricing has flattened since 2008, and Mr. Bosman said he expected it to remain the same through 2010.
“Prices have moved down by around 5% in property lines,” he said, adding that only a major catastrophe of $35 billion or more would affect the market.
Prices for property coverage increased by as much as 20% after hurricanes Ike and Gustav left insurers with huge claims in 2008.
