The report acknowledges that insurers enjoyed excellent results in 2006 because of record underwriting profits, additional capital “and the almost complete lack of weather-related catastrophes that year.” But times have changed and the market has become “intensely competitive,” with rates for catastrophe property coverage dropping and insurers and reinsurers alike returning to “coastal writing, even in regions with high hurricane risk.”
Although storms such as Andrea and Barry blew in during the early season, this year "is turning out to look more like 2006, which had only 10 named storms," S&P notes. Still, according to the report, danger continues to exist as “90 percent of Atlantic Basin hurricanes emerge from August through October." To illustrate this possibility one needs only look at 2005, when only six tropical storms had formed by the end of July; however, "by the end of the season, 28 named storms had formed."
Another season of stormy weather could bring an end to the current softening in both primary and reinsurance property/casualty lines, according to S&P. Whether such weather occurs, the report notes that insurers have already seen substantial losses due to wind-related damage from event such as a Nor’easter that pummeled the East Coast last April and a tornado that traveled through Greensburg, Kansas, last May, damaging most of the area. To prepare, even before the arrival of the tornado, “regional insurers had begun looking more closely at strengthening their underwriting and risk mitigation for tornado risk.” Concerns know no geographical boundaries, as insurers around the world have paid billions of dollars for windstorm losses that occurred in Europe and Asia.
The S&P report looks at what it calls “the expanded nature of the risk” – the worldwide scope, not just frequency and severity of such disasters -- as the most important aspect of hurricane risk. According to the report, “major uncertainty” surrounds issues such as insurers’ ability to handle losses and replace capital in the aftermath of a large-scale natural disaster; the capital markets’ ability to react positively in the event that catastrophic losses result in high sidecar or catastrophe bond losses; or the capital markets’ ability to support changes in the reinsurance industry in the face of major losses.