Editor’s Note: Bi-cycling

What a difference a year makes. The U.S. property/casualty industry posted a $24.4 billion net gain on underwriting through the first nine months of 2006. For the same period in 2005, it lost $2.5 billion.

Insurers and policyholders have Mother Nature to thank in large part. According to Insurance Services Office’s Property Claim Services unit, direct insured losses from catastrophes dropped to $7.6 billion in nine-months 2006 from $51.1 billion in nine-months 2005.

A year may have passed but the industry is still absorbing the losses and lessons from 2005, at least in its coastal policies. A Willis Re review of reinsurance renewals — titled “The Tipping Point?” — indicates that property reinsurance rates are still rising by as much as 40 percent in the hurricane and wind prone areas along the Gulf and East Coasts in the U.S. (Reinsurance rates for casualty lines, meanwhile, are dropping most everywhere around the world.)

The U.S. coastal rates are rising due to the “perception of increased volatility” contained in the latest property catastrophe models and reinsurers’ continuing efforts to recoup losses from the catastrophes of 2005, the Willis report notes.

According to Lloyd’s in the land of Charles Dickens, insurers are still recouping the 2005 losses. Lloyd’s Franchise Performance Director Rolf Tolle commented, “We are therefore seeing a tale of two markets. Rates have stayed strong or increased in catastrophe exposed U.S. business, while in other areas business continues to soften.”

Lloyd’s also reports that its insurers are “not counting their blessings, or indeed lowering their rates in hurricane-affected lines of business, just yet.”

“Just yet” may reflect the fears that insurers will indeed begin softening prices and loosening their underwriting even in hurricane regions. But thus far property reinsurers and insurers appear to be behaving wisely, heeding the predictions that the 2007 hurricane season could be one with above average activity.

Munich Re’s Dr. Torsten Jeworrek is among many warning the industry not to become complacent. “The fact nevertheless remains that, in the longer term, the number of severe weather-related natural catastrophes is set to increase due, among other things, to global warming. Combined with further increasing concentrations of values in exposed areas, this means continually rising loss potentials,” he cautioned.

It’s not enough that insurers alone keep the lessons of 2005 uppermost in their minds, adds Genio Staranczak, chief economist for the Property Casualty Insurers Association of America: “The industry, state and federal governments, private businesses and individuals must continue to better prepare themselves by ensuring that financial reserves are adequate, strengthening building codes and land use regulations, and putting in place catastrophe recovery plans to speed relief to those who need it after a disaster occurs.”

Topics Catastrophe USA Carriers Reinsurance Hurricane Property