Reinsurance capacity is ever plentiful in Florida ahead of the 2008 hurricane season, say experts

Science and technology are converging with risk management to help insurers negotiate the current hurricane season, according to Ryan Ogaard, Global Practice Leader of Instrat®, Guy Carpenter & Company, LLC’s risk and financial modeling services group.

No longer is reinsurance an annual consideration. It’s now possible to use short-term hurricane forecasts – as few as 10 days out – to design coverage targeting a specific area of the Florida coastline, for example.

“Luck favors the prepared,” Ogaard commented.

He was part of a panel of experts from Marsh & McLennan Companies, Inc. (MMC) who met today to discuss their views on property insurance availability, claims management, and reinsurance in advance of the 2008 hurricane season.

Advanced preparation is important for insurers seeking reinsurance as well as for businesses that must purchase hurricane coverage.

Pricing may begin to flatten out later this year, particularly as the number of covered events continues to climb. Insurers have already absorbed losses of more than $100m due to 15 individual events this year, including seven losses exceeding $350m. The total aggregate losses to date this year have exceeded $5bn due to flooding, fires, tornados, and other events worldwide.

Despite these events, reinsurance pricing has decreased 15 percent to 22 percent on a risk-adjusted basis and capacity has increased about 32 percent according to Kevin Stokes, leader of Guy Carpenter's Global Property Specialty Practice as well as its Florida Operating Committee.

Reinsurance capacity is ever plentiful in the Florida market. “The Florida cat fund plays an important role,” Mr. Stokes said.

What happens next year with both capacity and pricing will depend, at least in part, on whether there are any significant reinsurance losses in 2008. “We believe the game really starts in 2009,” Stokes said.

In addition, insurers continue to access the capital markets by issuing catastrophe bonds in order to supplement their reinsurance. “Interest in this market will continue to expand, although not significantly,” Stokes added.

The forecast for this year’s hurricane season, which runs from June 1 to November 30, ranges from near-normal to above-normal, according to the National Oceanic and Atmospheric Administration (NOAA), because the climate patterns it expects have produced a wide range of activity in past seasons.

The outlook for 2008 calls for a 60 percent to 70 percent chance that there will be 12 to 16 named storms, including six to nine hurricanes and two to five major hurricanes that may reach Category 3, 4 or 5 proportions. An average season has 11 named storms, including six hurricanes, two of which typically reach major status.