US Hurricane Outlook Seen Raising Insurance Costs

By Ed Leefeldt
Reuters

U.S. insurers on Monday said a gloomy report on the 2006 hurricane season from the National Oceanic and Atmospheric Administration will make home and business insurance more expensive.

NOAA, which makes regular forecasts of storm activity, on Monday said the hurricane season, which starts June 1, would see up to 10 hurricanes, of which four to six could be "major."

"The property casualty insurers are expecting many years of this," said Robert Hartwig, chief economist of the Insurance Information Institute. "By 2010, we are likely to see a year when catastrophe losses hit $100 billion."

The NOAA forecast follows on the heels of one by Colorado State University's Dr. William Gray, who forecast five major storms.

Forecasters agree that because of warmer water and air temperatures in the Atlantic Ocean, the U.S. is facing heightened storm activity. Last year's hurricanes, the worst season ever, caused more than $58 billion of insured losses, while the 2004 season saw property casualty carriers hit for $28 billion in damages.

Based on predictions by forecasters, Risk Management Services, a Newark, California-based group that models future disasters for the insurance industry, is anticipating one major storm, with winds of 111 to 130 miles per hour, will hit the United States every year over the next five years, according to Robert Muirwood, chief research officer.

"We have increased our expectations by about 50 percent for catastrophes of all kinds, from $15 billion to $22.5 billion a year," said Stephan Christiansen, director of research at Conning Research & Consulting Inc.

Christiansen said insurers escaped some of the impact of last year's hurricanes because reinsurers, which write policies to cover them in the event of disaster, absorbed about a third of the $58 billion in insured losses.

"But if you have another year of major storms, reinsurance may dry up," he warned.

Insurers are well aware of their vulnerabilities, particularly along coastal states.

American International Group Inc., which had more than $2 billion in losses from hurricanes last year, is cutting back in Florida and Texas, and raising rates in hurricane-prone areas by 30 percent or more.

Fearing a storm along the Atlantic Coast, Allstate Corp. is refusing to write some homeowners policies as far north as the New York City area. It lost more than $3 billion in areas such as Louisiana, where New Orleans was flooded by Hurricane Katrina.

Source: Reuters (www.reuters.com)

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