"(Catastrophes) very well could affect rates but there are many factors at play right now," said Ms. Knauf. "There could be a bad year catastrophe-wise and not necessarily cause too much of a disruption but there are other things happening."
Along with $11.5 billion in insured losses due to 11 events declared catastrophes by ISO's Property Claims Services Unit during the third quarter, the industry also felt the sting of financial market turmoil. In addition, reinsurance demands are predicted to increase, resulting in higher costs, Knauf said.
PCS said 22 states were affected by catastrophes in the third quarter, resulting in 1.7 million claims. The estimates continue a trend of high insured losses for the year. PCS said the industry would be on the hook for about $3.35 billion after the first quarter and more than $6 billion after the second quarter.
Knauf said "there will probably be some pressure on rates" generated by reinsurance pricing. Recently, Ludger Arnoldussen, a member of Munich Re's board of management, said that the reinsurance market is hardening, due partly to the recent financial market turmoil.
PCS has declared that 36 catastrophes, as of Sept. 30, have caused $22.1 billion in insured loss and 3.7 million claims. According to PCS, catastrophes during the first half of 2008 caused almost three times as many insured losses to property than during the same time in 2007 -- a light year in terms of catastrophes. Two years ago was also a relatively calm year for catastrophes, giving insurance companies an opportunity to increase policyholder surplus, Knauf said.
Insurers have "plenty of policyholder surplus," Knauf said, noting that she does not expect underwriting to change. Unpredictable losses from storms this year in the Midwest are offset by gains in surplus in previous years, whereas writing on the coast will continue to be a high-risk endeavor.
As insurers may have to take chunks from surplus, coupled with investment losses, higher reinsurance and continued trends in rising loss costs, consumers could see some turn in what has been a soft market.
PCS has said insurers' net investment gains the sum of net investment income and realized capital gains (or losses) on investments fell 18.4% during the first-half of this year, from $30.3 billion in first-half 2007 to $24.8 billion. Companies continue to post losses on investment in the third quarter. Allstate Corp. posted a third-quarter loss of $923 million, driven in part by a 15.5% drop in net investment income.