Global reinsurance sector receives stable outlook, despite hurricanes

An initial review of Hurricanes Katrina and Rita’s effect on the global reinsurance sector indicates a stable rating outlook, according to Fitch Ratings.
Fitch maintained this outlook under the premise that the losses from Hurricanes Katrina and Rita will be manageable in relation to the sector’s overall capital base. As long as no further shock losses occur, Fitch says the sector should be able to recoup its losses in a 12 to 18-month period.
Underlying this forecast is the fact that there will be a $30-50 billion industry-wide insured Katrina loss and a $3-6 billion industry-wide insured Rita loss. Additionally, Fitch ascertains that the insurers with the largest market shares in the affected states, State Farm and Allstate, will incur, and retain, $10 to 16 billion of the industry-wide insured loss.
Fitch’s analysis assumes that two-thirds of the industry-wide losses, or $15 to 26 billion, will be absorbed by the reinsurance sector.
As a result of the global reinsurance sector’s year-end 2004 results of approximately $350 billion of equity or surplus, Fitch believes that the sector’s pre-tax losses from Hurricanes Katrina and Rita will represent a comparatively modest four to 8% of the sector’s beginning of the 2005 year equity or surplus.
Fitch believes that it is reasonable to assume that the reinsurance sector will be able to recoup its $15-26 billion in 2005 hurricane losses in a 12 to 18 month period.