Best Outlook: Credit Crunch Could Wreak Havoc in Cat Pool Funding
According to a report by A.M. Best Co., Inc., if a major hurricane hit the U.S. this year, the conditions that caused the credit markets to turn upside down could leave policyholders out in the cold and affect the ability for carriers and insurers to cover claims. The report concludes that investors are showing a "limited appetite" for capital-market offerings designed to raise cash for claims payments.
Forecasters say the 2008 storm season is likely to be busier than average, according to the report, “Credit Crunch Clouds Outlook of Hurricane Insurers, Cat Funds." The report looked at the impact of catastrophes on the property/casualty insurance industry, and indicated that, for example, that the Florida Hurricane Catastrophe Fund, a state-backed reinsurance fund, tried to raise $7 billion of “pre-event” bonds to increase its capacity to pay claims.
“That was just when the subprime mortgage crisis was kicking into full gear, however,” says the report. “By October, the fund was only able to sell $3.5 billion of the bonds at substantially higher prices than had been anticipated,” it says.
In addition, in a growing number of other states’ regulators and lawmakers have also “had to examine current claims-paying arrangements for wind and beach pools because of the significant growth in these plans’ liabilities,” the report says.
Published on May 20, 2008
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