Canadian Underwriter

Analysts debate post-Katrina rate hikes

September 16, 2005   by Canadian Underwriter

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U.S. industry analysts are predicting insurance premium rate increases along the U.S. Gulf States and along the eastern seaboard in the aftermath of Hurricane Katrina although the rates are not expected to rise in the immediate future.
“The claims in Louisiana are not going to impact premiums in Illinois, New York or New Jersey,” Dick Luedke, a spokesman for State Farm, is quoted as saying in an A.M. Best release. “Now, what that doesn’t mean is that there’s going to be no impact at all.”
The impact will come not so much from a direct hit by Katrina-related claims, but rather through a rise in reinsurance and other secondary variables, such as a demand for building supplies in the south, according to analysts quoted by A.M. Best.
“We just had maybe $60 billion in capital destroyed, and insurers are going to want to replenish that,” Martin Grace, a professor of risk management and insurance at Georgia State University, says. “One of the ways they will do that is to ask for more reinsurance and that’s going to cost them.”
Bob Hartwig, chief economist with the Insurance Information Institute in New York, predicts retrocessional markets the reinsurer’s reinsurers would be the first to feel Katrina’s brunt. He said if reinsurers raise their prices to cope with the loss, primary insurers would feel pressure to raise their rates accordingly.
Hartwig told A.M. Best the industry was in the midst of a soft market when Katrina hit. And since insurers and reinsurers have strengthened capital in the past four years, he said, the impact of Katrina is likely to be far less profound than it was in the aftermath of damage caused by the Sept. 11 terrorist attacks.

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