A total of seven natural catastrophes in the third quarter of this year cost the nation's property and casualty insurers an all-time high of $40.8 billion in insured property losses in 14 states, according to preliminary estimates by Property Claim Services. Even before the fourth-quarter figures are tallied, the losses make 2005 the costliest year ever for catastrophe damage.
The industry's previous worst third quarter occurred just last year, with catastrophe losses of $23.7 billion. These figures compare with third-quarter losses of $3.7 billion in 2003.
Including the third-quarter claims, insured losses during the first nine months of 2005 stand at $43.8 billion from 19 catastrophic events in 37 states. This represents the industry's worst nine-month period ever, compared with $24.7 billion during the same period last year.
PCS estimates that the quarter produced nearly 2.3 million claims for damage to personal and commercial property, vehicles, and boats. At $34.4 billion, Hurricane Katrina was the quarter's costliest event, followed by Hurricanes Rita ($4.7 billion) and Dennis ($1.1 billion). Louisiana was the hardest-hit state with $25.04 billion in insured losses, followed by Mississippi at $9.9 billion, Texas at $2.2 billion, Alabama at $1.5 billion, and Florida at $1.3 billion.
Despite the inordinate catastrophes of the last two years, record capital growth will lead to increasing competition within the insurance industry, according to a new report by Conning Research and Consulting.
“While the effects of the 2005 hurricane season will be dramatic, and are not yet fully realized, we still anticipate that, industry-wide, property-casualty insurers will report strong results for the 2005-2007 period, with industry-wide [return on equity] above 7 percent,” said Clint Harris, a Conning analyst. “Property-casualty industry performance will degrade somewhat over the next three years due to increasing price competition, but it will still be strong by historical standards.”
The report, Property-Casualty Forecast & Analysis by Line of Insurance, Third Quarter 2005, has been revised to reflect an increased expectation for losses. Although the catastrophes will mitigate price competition in severe windstorm exposed areas, Conning sees a broader trend toward continued softening.
Intense competition has thinned the herd, according to Frank J. Coyne, president of ISO. “The number of insurers serving the United States has dropped 25 percent since 1990, and the long-term prognosis is for more of the same,” Coyne said.
The future is further clouded by the prospect of worsening catastrophe losses. Even if the intensity and frequency of hurricanes does not increase, catastrophe losses will, said Coyne, citing inflation, population growth, and booming development in the hurricane prone areas. “Hugo, Andrew, Katrina and Rita are harbingers of things to come,” he said.
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