Damage from Hurricane Irene could raise insurance prices
NEW YORK (Reuters) – Hurricane Irene, threatening to become the first hurricane to hit the United States in three years, could be the catalyst the insurance industry has been seeking in its quest for across-the-board premium increases after years of weakness.
Like speculators in the futures market who applaud the effects of drought on wheat prices, another disaster could ultimately cheer investors in insurance and reinsurance stocks. Major storms in 2004 and 2005 triggered a surge in insurance stocks after the fact.
Since Hurricane Ike in 2008, though, the United States has enjoyed relatively mild weather by disaster standards, up to this year.
Weather-tracking maps on Monday suggest Irene could make landfall as soon as late Thursday. Though the tools are less reliable in advance of 72 hours from landfall, some models forecast that the Carolinas are vulnerable to a major storm with winds in excess of 110 miles per hour.
Regardless, 2011 already promises to be the costliest year in history for natural disasters around the globe.
By some estimates, insurers have lost as much as $90 billion already this year, 20 percent more than they lost in 2009 and 2010 combined. Insurers have not been able to raise rates for three years amid strong competition and readily available supply, but industry veterans say even a small storm now would be enough to trigger premium hikes.
“It wouldn’t take much of a material event to cause significant firming,” said Gary Prestia, chief executive of the U.S. business at global reinsurer Flagstone Re. “It wouldn’t take the typical $40 billion Katrina to push this into a firmer market than it is currently.”
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