2004 hurricane losses continue to dampen fortunes

The rising loss total being attributed to the 2004 U.S. hurricane season is putting increasing pressure on the shareholders’ equity of many insurers and reinsurers, says a report by Standard & Poor’s.
S&P notes that two issues are causing the loss estimates to rise even into 2005. “First, companies initially underestimated claims because of assumptions they made for construction costs and structural soundness of insured property, and obstacles they faced in gathering accurate information while the storms were still raging,” the report notes. “Second, primary insurers were not adequately reinsured for the frequency of the storm season, which brought four hurricanes to the U.S. East Coast in August and September 2004 instead of just one.”
One example is RenaissanceRe Holdings Ltd., which revised its loss estimate upwards by 22.4% to US$520 million, or 21.2% of shareholders’ equity.
Nonetheless, the rater says it does not plan to take action on any ratings based solely on increasing loss estimates from the hurricane for companies like RenRe, AIG, Everest Re, IPC, St. Paul Travelers, XL Capital and Zurich. “Although S&P has not changed ratings or outlooks on these companies as a result, this does highlight a somewhat less conservative approach by these companies,” says S&P credit analyst Damien Magarelli.