Regulators say insurance industry is prepared for Hurricane Katrina's cost

The estimated insured losses from Hurricane Katrina’s direct impact have increased to $20-$35 billion, according to Risk Management Solutions (RMS). On the day of Katrina’s landfall on the Gulf Coast, RMS released a preliminary estimate of $10-25 billion for insured losses. The increased estimate is based on more detailed information from aerial and ground reconnaissance on wind and storm surge damage, as well updated reports on damage to offshore platforms and infrastructure that sustained Category 5 winds as Katrina passed through the Gulf of Mexico.

Hurricane Katrina can be viewed as two loss events: the direct impact from the wind and storm surge, and the subsequent flooding that occurred in New Orleans as a result of the levee breaks. RMS is continuing to assess the estimated loss associated with the New Orleans flood, and expects the insured loss estimate to increase as the extent and duration of flooding are better defined.

RMS expects total economic losses from both events to exceed $100 billion, including both insured and uninsured components of loss. In major catastrophes, the uninsured component of loss often equals or surpasses the insured component.

The US National Association of Insurance Commissioners (NAIC) says that while the damages from Hurricane Katrina may set record losses, the property and casualty industry maintains the adequate capital and liquidity required to withstand claims arising.

Presently, the US property and casualty industry maintains policyholders' surplus of roughly 390 billion dollars and holds assets in excess of 1.3 trillion dollars. State insurance regulators require insurers to maintain minimum levels of surplus to absorb the volatility inherent in property and liability policy coverages. Over 75 percent of the industry's assets are held in marketable securities.

Helping assure the solvency of the insurance industry is a primary focus of state insurance regulators. As with past disasters, state financial analysts are well underway to assess the financial and operational impact of insurers affected by Hurricane Katrina. Working through the NAIC, states will be sharing assessments and coordinating the appropriate actions to help ensure that claims are paid.

"These financial results demonstrate that insurers are up to the task of making good on the promises that they have made to American businesses and consumers through their insurance policies," said Diane Koken, NAIC President and Pennsylvania Insurance Commissioner. "Some smaller insurance companies will experience financial distress, but the overall condition of the industry should remain healthy."

Early estimates by NAIC place insured losses attributable to Katrina in excess of 1992's Hurricane Andrew, greater than any other US hurricane event. These losses will be averaged over a long period of time (typically 30 to 50 years for property insurance) and reflect estimated catastrophe costs. Since insurance rates already include a factor that reflect losses from catastrophes, like Hurricane Katrina, the NAIC does not expect property insurance rates to be significantly affected.

•Date: 6th September 2005 • Region: US• Type: Article •Topic: Financial sector
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